Economic Models of Optimism: What Does the Evidence Say?

Abstract

Recent economic models define a (non-Bayesian) optimist as someone whose beliefs and expectations are typically “too rosy”, in the sense that her priors and the evidence objectively available statistically warrant a more negative outlook. This paper reviews the existing empirical literature on optimism to assess the empirical relevance of those models. While there exists abundant and compelling evidence in favor of motivated inference, i.e., that preferences shape beliefs, the support for the most specific predictions of the economic models seems mixed, if not negative. We discuss open questions and opportunities for future research