By A Web Design

Optimism Bias: What Keeps Us Alive Today Will Kill Us Tomorrow





Definition of a lie: any not entirely accurate representation of the world as we perceive it; what's not spoken can be as crucial as what is.


So yeah, people lie. They, we, all do. Some of us understand the extent to which this is true better than others, but that's probably just because we haven't all spent equal time wondering when it was we first started doing it. Let alone why. Interesting questions. After the fact, it's blindingly obvious why we would want to lie: accomplished liars get to mate faster and more often. Which still is the purpose of life, even though it may not be terribly fashionable to phrase it that way these days.

But we couldn't have known that before we began lying, so that's not what got us started. Another interesting question is who we first lied to, ourselves or others. I personally lean to the former option lately, since we couldn't have known the advantages of lying to others beforehand. Whereas fooling ourselves could potentially have developed as a much more insidious, secretive, step by step feature.

Likely purely as a survival mechanism, after extremely traumatic experiences. To have such experiences, you need awareness, consciousness, either/or. Probably a sense of belonging to a group, a family, as well as a sense of what's right and what's not. If, in that state, you see your friends and family get killed off by a natural disaster or the cruelty of other humans, you need some sort of selective memory, some kind of denial mechanism, in order to survive both mentally and physically, and to find meaning in your life, a pre-requisite for who has awareness and is not a full-fledged psychopath.


The ability to lie to ourselves, and make ourselves think our lives are better than they really are, and that our own place in the world looks better than it does, has endowed us with a propensity for good tidings. We want the world around us to skew our picture of who and how we are in the same way that we ourselves do. Turns out, that's not a hard thing to find.

If only because the other kind of lying, that from one human being to another, the one that developed quite naturally modeled after our "internal" one, comes with one major caveat. Our ability to detect lies told by others is highly compromised by our ability to lie to ourselves, since the latter only works if it remains somewhere in our unconscious. We obviously don't consciously believe our own lies, and therefore neither the lies of others.

It all takes place outside of, beyond, our awareness. That's where the second hand car salesman operates, and any other charmer and grafter, the ad executive, the junkie and the politician. Sigmund Freud may not have been the first to realize this, but he was the first to frame it in rational terms. If you make commercials that tell people what a car or a perfume or a burger really is, they won't bite. If a junkie tells you what he really wants the money for, you don't give it to him.

And if a politician tells you what the real state of the economy (and hence your future) is, you're not going to vote for him. So (s)he tells you want you would like to hear. Without you even knowing it. There's a world full of things out there that you want without knowing it, and as many that you don't want. Why we don't teach Freud throughout all our school systems, all the time, is a far deeper mystery than any of us alive today care to ponder. Unless we bow to the notion that we - unconsciously (?!)- don't want to know that either. We don't want to know why we don't want to know, because when the dominoes start falling that would shatter our carefully crafted and polished self-portraits.

All this to lead into what I really wanted to talk about. The optimism bias. Which plays havoc with everybody's understanding of the financial crisis like there's no tomorrow. Pun both intended and unconscious. And, in true character, nobody seems to notice much. Nobody wants to. Not unconsciously.


Extra, Extra, read all about it! the EU is falling apart so desperately now that Greece calls on the Arab world for loans, and Spain turns to South America. The crisis and the austerity it bred start to bite the European core. And will continue on their inevitable course towards swallowing it whole.

As you all would have seen long ago, if not for your optimism bias playing headgames. Most of you still won't, and possibly for quite some time to come, depending on how much longer it takes until the walls start to truly crumble. Because it's not until the truth stares them straight in the face that people will see it for what it is. And even then.

For the exact same reason, there was never a chance that Obama would lose the recent election. Because of the relatively acceptable economic numbers, multiplied by the optimism bias. Anyone who didn't see that coming in the run-up to the election should get themselves an education. Yeah, like, read Freud. That should go a long way towards figuring out who's saying what and why they say it. And towards explaining why you didn't know.

But, before this all becomes too winding a tale, let me explain that I got back to thinking of this topic of lies and self deceit and Freud because of a pretty simple graph I picked up from the website of a Dutch TV channel named RTL-Z. And i'd like to stress that this graph, and what it depicts, by no means constitute an exception in any way shape or form; the graph is merely an example of how economic and financial data are treated, and have been for years, by the media we frequent and trust. Thing is, we do that because they tell us what we want to hear and see and believe, because they provide that version of the story which we prefer to the real one, which doesn't fit our optimism bias.

Man, all those stories too about the US economy recovering, enough already. The US ain't going anywhere forward without Europe, and Europe is moving backwards if at all. Economic growth at unemployment rates of 25% in Greece and Spain and what is it, 14-15% stateside (?!), is not a viable thing. Our optimism plays games with us, and so do our politicians, to the extent that we come to think it's actually possible, though we know we should know better, to pay off our debts with more debt. Blinded by the light inside.

This graph tells the story (one of an endless number) of what, over the past four years, the EU predicted would be Greek GDP numbers, through five consecutive rounds of predictions, and what eventually actual numbers turned out to be. Pretty graphic(al). Being off by 6-7-8% was no exception, it was the rule. And this whole procedure is no exception either, it's all the rule. Which all politicians, pundits and forecasters get away with breeding because the stories they tell are the stories you want to hear. And then the stories inevitably turn south.

And they'll continue to do that for a long time, until we demand to know what happened to the debt. We don't really want to know that, though, do we? We have this unconscious itch that tells us exactly what happened to it. And we don't like that. We'd much rather believe anyone who tells us it'll be fine, that we can either borrow our way out of too much borrowing, or budget cut our way out of our budget deficits. Either way we fancy we'll have a little bit of pain, just a twitch, and then we can restart the party and make it bigger better than it's ever been.

I've said it many times before: we are the most tragic species. We not only destroy all of the world around us, we are aware of doing it but unable to stop ourselves. We have faith and hope that things will get better, that we can turn around at the last second what we've screwed up over years and decades. Which of course is nothing but an excuse to keep on screwing up. All courtesy of our optimism bias.

Here's the graph:


 


The thing about this graph and its consequences is that the policies for what happens at the final stages shown in the graph are defined by the predictions at the early stages. Once reality sinks in, it's too late, the damage has been done. The difference is then made up for by firing an additional million people here and there, cut pensions and benefits for a few million more, and keep talking about a recovery just around the corner. Beyond the horizon, more like it.

This is how all those who have a public voice you care to listen to treat their audiences. Because they are well aware that if they spread a message that fits in with the prevalent optimism bias, they will be more popular, sell better, get more votes, get elected into office. When Jack Nicholson said you don't want the truth because you can't handle the truth, he was talking to a much wider audience than we would like to acknowledge.

And so we get what we get. Still, you can't always get what you want. In the end, all that's left is what you need. And we know that, unconsciously. It's just that in the meantime we like to be sitting pretty. And not think about the fact that this very attitude of ours will hasten and worsen the end. We're creatures bent on instant gratification. Which is, come to think of it, precisely why we have our optimism bias in the first place.

Whatever it is that's going wrong, and there's more of that than we can summarize right here and now, the tragedies we create rival those of the ancient Greeks, which in and of itself shows that we never learned much. Voltaire in his 1759 Candide told us to replace "all is for the best in the best of all possible worlds" with "we must cultivate our garden". Never took that to heart either.

Like all those before us, we'll walk right into our tragic futures thinking everything will be alright. 'Cause that's who we are. Our tragedies will be as over the top bloody and deadly too as the Greeks' were.

Meanwhile, being the modern people we are, we can't help but wait for Godot, and we'll die waiting, because our optimism bias tells us he will come.

No, this is certainly no time for easy optimism, but tragically, that's all we got.

We're only static on the radio, picking up speed.*


 


War, children, it's just a shot away.
Rape, murder, it's just a shot away.
It's just a kiss away.
Gimme shelter or else I'm going to fade away.


 

* Great line, courtesy Band of Horses


 

Posted: 5 months, 2 weeks ago by istt #6394
Thank you for your response, Ilargi. I guess what I am asking, to be more specific, is, how should assets be allocated? I know you have said cash is king and I believe you also feel hard assets are more desirable as well, such as real estate. Realize I reside in the US. Nicole has said the dollar will fare much better than other currencies. As I said, I have not completed the DVD set yet. Is this information covered in the set?
Posted: 5 months, 2 weeks ago by ilargi #6383
istt,

I don't know how specific you would like the "answers" to be, I hope it's obvious that we're entering chaos, and that makes it impossible to predict all too specific things, other than enormous losses in wealth and purchasing power, as well as availability of products that can (no longer) be bought.

In general, the larger the scale of the system you depend upon for your work and your basic necessities, the worse off you will be. The closer you keep your control over your energy, shelter and food, the better it is.

But that doesn't guarantee much of anything in a chaos; we can only do the best we can.
Posted: 5 months, 2 weeks ago by istt #6380
This message or point has been made many times, and I agree with it. You cannot get out of a debt problem by amassing more debt. However, what I would really like to read more on is what will be the specific consequences of piling on more debt. Yes, things will collapse, economies will falter but what does this translate into for the everyday citizen? What can we expect to see happen? What will be the fallout of this kicking the can down the road when there is no more road? What, Ilargi and Stoneleigh, do you envision happening? I recently purchased the 4 DVD set and have listened to the first DVD. Will the answers be revealed in the later DVDs? Thanks.
Posted: 5 months, 4 weeks ago by Nassim #6366
Rodney7777

I see. Material science and energy do not even enter into the equation.

If we build - with the help of 3D printers - gadgets, we will no longer need the factories of China or the resources of Africa and Arabia

Posted: 5 months, 4 weeks ago by SteveB #6363
Rodney7777 wrote:
I want to comment on optimism.


Did you mean "in optimism"?
Posted: 5 months, 4 weeks ago by Rodney7777 #6357
I want to comment on optimism.

Underneath all our current problems, such as debt, deflation, etc It does seem possible that underneath it all, the future is bubbling away, getting ready to appear.

As an example, I just learned that not too far from me is a company that has fifty 3D printers, working 24/7. 3D printers combined with scanners and design software is going produce huge change. Everyone, sitting at home in front of their computers, would have the capacity to "build a better mousetrap". Also, as another example of change, it may be that earthquake and hurricane proof skyscrapers will be "printed".

Of course energy is needed for the future. If Ray Kurtzweil is correct, solar is going to grow exponentially soon and combined with improved battery technology, it, solar, will become the main source for local energy. Cheaper, more powerful, and lighter photovoltaic solar panels means that someday all roofs will be solar panels. After all shouldn't we have better roofs than asphalt with little stones, coated with ceramics imbedded in it? Combined with a switch from uranium to thorium reactors, and conservation, means that there is much more energy that is cleaner, to be harvested and produced.
Posted: 6 months, 3 weeks ago by John Day #6200
After an intense 3 days of difficult choices and complexities of packing order, a 45 ft shipping container is packed for rural Hawaii, including a 13 year old Chevy (Toyota) Prizm and an '87 Isuzu P'UP diesel long-bed pick-up , both with under 90k miles and a lot of fixing-up.
Also a complete off-grid solar power set-up, with 10 kWH of Edison cells is in there, and 5 55 gallon Kikkoman soy sauce shipping barrels of food grade plastic, and other forward-looking tidbits.
I'm optimistic that it and I will get there.
I'm flying back for Christmas on 12/21/12, late flight from Kona.
If the world ends that day, I am going to stand there and be a pain-in-the-ass until they credit my card for the flight.
Posted: 6 months, 3 weeks ago by Ian #6187
Oh dear, what a sad little place TAE has become! Virtually deserted; nothing going on, move along.

That's what you get for autocratic rule, cencorship and galavantly around the world instead of doing the knitting at home..

I could say 'I told you'...and I will. But still sad.
Posted: 6 months, 3 weeks ago by Nassim #6185
Here is an excellent example of optimism-bias:

"Preventing Armageddon Would Cost Only $100 Million … But Congress Is Too Thick to Approve the Fix"

www.zerohedge.com/contributed/2012-11-23/preventing-armageddon-would-cost-only-100-million-%E2%80%A6-congress-too-thick-approv

I guess when something like that happens, they will blame it on the "terrorists"
Posted: 6 months, 3 weeks ago by Professorlocknload #6184
Voluntarily or by decree, you 'vil be optimistic and you 'vil like it!

It seems the power has always believed "Too much liberty is a bad thing." It's now becoming consensus. Tell it long enough, often enough, and, well?

Was Putin really that far off the mark when he said the US is becoming more like the old Soviet Union every day?

Political evolution, I guess.
Posted: 6 months, 3 weeks ago by Adam Goodwin #6183
Ouch! How is someone supposed to rationally respond to that critique? If someone wrote that to me, I wouldn't know how to react--get angry or thank them. Sometimes it's better to just leave such things unspoken and let people figure it out themselves.

But, one's optimism is really no one else's business but your own. No one has the qualifications to write about another's optimism, because that's their inalienable state of mind. Too much personal judgment buried in any social analysis (economic or political) about how other people are or should be. All assumptions (aka 'social science') about other people outside the Self are just probabilistic models reliant on correlative data. Always gonna be black swans.

I've always felt more grounded because of the peak oil (and economic effects) material I've read. It's pushed me to become a more mature and self-reliant person. If anything, the limits' literature is necessary to convince us we should no longer rely on people we can't see.
Posted: 6 months, 3 weeks ago by bentrem #6181
"this is certainly no time for easy optimism, but tragically, that's all we got."
Do you really belief this? Slopping thinking, or just slopping writing? (In-group dynamics; shared cynicism enables folk to share snickers and giggles over such as this.)
In any case:terrible attitude. Confident to the point of arrogance, but really thoughtless ... like a prideful child.

"We're only static on the radio, picking up speed."
Radio static can "pick up speed"? Oh ... really. You don't say.
I'm shocked and surprised to see such self-satisfied, self-indulgent sloppiness passing for thoughtful analysis. Oh, wait, no, I've been watching my cohort for 44yrs ... not surprised.
Posted: 6 months, 4 weeks ago by ChartistFriendPgh #6170
Posted: 6 months, 4 weeks ago by ilargi #6169
compound f,

I’m not quite sure what you would like to hear. It's not as if Newberry’s ideas are all that unique or novel, in my view. His insistence on phrasing his issue in terms of American party politics strikes me as making that same issue unnecessarily shaky; just another ideologist, that sort of thing. And perhaps he can be forgiven for missing out on the consequences of for instance the housing bubble, since his piece is 7.5 years old. But that doesn't change our perception that financial bubbles have their own internal dynamics, even though Newberry completely ignores this. I also have my doubts about his phrasing the issues in a US-centered format; that not only seems awfully naive by now, it already wasn't very smart in 2005, even if to this day there's plenty misconceived talk of decoupling. We are in a global bubble, not a local one.

In short, Nicole and I have always rejected the notion that peak oil caused the bubble we're in, and we see no way whatsoever to change that. That doesn't mean that energy and finance won't or can't interfere with each other in the future of course, just that a causal relationship here and now doesn't exist in the way many people claim. Which seems to stem from an overly one-sided focus on energy issues, if anything: hammer meet nail. Going forward, we do see financial issues exacerbating energy issues, when money, credit, simply won't be available to maintain existing energy infrastructures, let alone allow for a shift towards alternative sources if oil were to be less available.
Posted: 6 months, 4 weeks ago by compound f #6168
I wonder if Ilargi or Stoneleigh are familiar with stirling Newberry's "american thermidor" thesis.

[http://archive.truthout.org/article/stirling-newberry-american-thermidor

I'm not as much interested in the thermidor aspect, for present purposes, as your response(s) to his economic thesis. If one or both of you could respond to American Thermidor (energy deficit --> trade deficit --> investment deficit --> bubbles -->...)

I understand that Nicole has firmly stated that that mania can occur sans...any need for for mania, any primary deficit in needs, being born purely of the nature of incentive motivation itself; and I wholly agree; but Stirling's argument is of a substantive (motivation is related to outcomes!) type.

Please don't confuse my meaning of "substantive:" either incentive motivational (pavlovian) or outcome-oriented (skinnerian) will do for my purposes.

My point is, what do you think of his argument?
Posted: 7 months ago by Nassim #6167
jal,

I concur with you. I find that I am at my most creative when I have nothing "important" to do - like right now.

I think boredom is a very valuable thing. I try to make sure that my kids are bored some of the time. Of course one can be actively doing something physical or repetitive and be bored and creative. One does not have to be sitting along on a bench. Watching a boring program on TV or reading a boring book does not inspire that sort of thing.
Posted: 7 months ago by jal #6166
The surest way to keep people dumbed-down is to keep them under constant chaos and stress because then they have no time to think, to evolve.


I see some truth to that.

My experience, The Mother of invention, is boredom, not necessity.
Posted: 7 months ago by ashvin #6165
scott wrote:
ash, thanks for the comment. Reminds me of the fact that chimps and humans share 98% of the same DNA. Seems pretty obvious to me that there is a lot more to being human than DNA.


I'd say there's a lot more to being a chimp than DNA too. I believe many animals have immaterial souls (mind, will and emotion), but humans have souls and spirits, the latter being what makes us unique and gives us human culture (art, music, language, etc.), ego/pride, existential thinking, religion/spirituality, moral conscience, sin/remorse, deep emotional suffering, etc..
Posted: 7 months ago by backwardsevolution #6164
Scott - "...chimps and humans share 98% of the same DNA. Seems pretty obvious to me that there is a lot more to being human than DNA."

But what's contained in the remaining 2% is most likely very important. Humans, unlike all other animals, have regret about the past and fear for the future. We have egos - big ones - which we protect like a mother bear protects her young. But I agree with you, there is more than just DNA involved.

It's called fear.

Adam Goodwin - "It could be argued that it's because of the social control powers of money--and materialism, itself--that we suppress who we are. Jung wrote that hierarchy, especially the state, repressed the inevitable process of individuation in a mature adult. The process of individuation, where the unconscious is brought together with the conscious mind into a concurrent whole...."

This is what Maslow said, that you cannot step up the ladder if your needs are not met. I agree; with the treadmill-type existence that most families live under, under constant stress of losing their jobs, their homes, their families, it's no wonder they remain on the lower rungs. TPTB most likely are very aware of this fact and want to keep it this way. The surest way to keep people dumbed-down is to keep them under constant chaos and stress because then they have no time to think, to evolve.
Posted: 7 months ago by scott #6163
ilargi, nice article. I guess reality is a hard pill to swallow when most want to believe the lie.
ash, thanks for the comment. Reminds me of the fact that chimps and humans share 98% of the same DNA. Seems pretty obvious to me that there is a lot more to being human than DNA.
Posted: 7 months ago by Babble #6162
A pessimist is an optimist that life has kick to death. It seems to me that it is easy for people to lie to themselves, they often just ask some god to forgive them if they realize the lie.
This is easily seen in people who became estatic about completely nutty candidates like Palin, Bachmann, Santorum, etc. The more crazy the candidate the more they cheered.
The problem with the economy is that you hear every side, all the time. Its nearly impossible to sort it out while believing in "the end is near" forces either acceptance or you must take action. We have been hearing this for years so belief withers. This is not lying to oneself, it is just exhaustion.
Posted: 7 months ago by davefairtex #6161
Optimism, pessimism, fatalism - all interesting words.

Sometimes it seems like - and I'm paraphrasing JMG here - the only two permissible thought-states in this TSHTF dialog are self-deluded hopeful optimism and well-informed apocalyptic fatalism. I'd like to find another state, if possible. I'd like to retain my pro-survival health-inducing positive and hopeful attitude, while not letting that stop me from taking steps to limit downside risk and expecting trouble coming on the horizon. I don't find that particularly easy.

That Prison of Debt Paralyzes West article - a good big picture look at where the western world really is; government, debt, prosperity, expectation, and economics. Thanks for the link.

It is clear that the reason for the downward spiral in Spain & Greece is that prosperity in both places was debt-funded illusion, and that they are the canaries in our global coal mine. How will our unwind take place, and what will it look like? When will our illusory prosperity vanish, how will we handle it, and how will that impact government and our collective mental state?

We do not have control over events, but we can control how we react to them. In fact, that's really the only control most of us have over our existence here on earth. Remaining personally hopeful and positive - I won't use the word optimistic - is my goal. For me, remaining in a negative mental state is unhealthy and thus anti-survival. That seems like a bad idea overall, even if it might provide more motivation to prepare.

This is a really good discussion I think, at least for me.
Posted: 7 months ago by ashvin #6160
g-minor wrote:
Neither Freud nor Jung had a clue about how the brain works. Both were steeped in 19th Century romantic notions of individualism, invented theologies of mind and consciousness and tried to pass them off as science inflected with poetry. Psychologists are just coming around now to recognizing the physical, material facts about what goes on in our heads. Freud and Jung were just telling stories. They may have helped to make us aware of the limitations of what we call our conscious minds (sic) but they didn't understand that our perceptions of ourselves and others don't necessarily correspond with what is going on there, and that DNA runs the show with a single-minded agenda of its own.


This is just a materialist conclusion, not necessarily supported by modern science. There are many aspects of the mind that are not reducible to physical processes in our biochemical systems. The more we study human history, nature and the mind in both animals and humans, the more we discover that humans are different in kind from other animals, not just by degree of intelligence or emotional capacity. That, to me, suggests that DNA does not in fact run the show.

With regards to optimism, it all depends on what your philosophical assumptions are. There are very sound philosophical foundations for hope in the face of tragic circumstances, if you accept that there is purpose and direction to everything. Even tragedy and suffering has spiritual purpose, and that is something to be optimistic about. However, if you place your faith and trust in philosophical materialism, a world consisting solely of mindless physical processes, with no greater purpose than human pursuits and goals, then there is very little to be optimistic about, even in normal circumstances.
Posted: 7 months ago by pipefit #6159
Steve quoted Evans as, "The agencies underestimated the probability of default by more than a factor of 10."

Perhaps there was some under estimation, or maybe it was fraud? The information we have to work with is not very good. This is why it is so critical for every human, optimist or otherwise, to load up tangible items, held in your own possesion. We really don't know how many claims there are on financial assets. Think rehypothecation.

People, being generally honest, have this naive hope that the folks running the financial system share the same moral values, such as the respect for private property. Misplaced optimism?
Posted: 7 months ago by SteveB #6158
pipefit wrote:
The biggest lie of all is the extent to which the USA Dept. of Labor understates consumer price inflation. If they used the same methodology they used in 1990, the reported CPI inflation number would double the reported number (6% instead of 3%), and if they used the 1980 methodology, it would more than triple!!!


That reminds me of some relevant inaccuracies called out by Evans in Risk Intelligence regarding the credit rating agencies (2005-2007 data):

"The agencies gave the highest-rated securities (AAA) a mere 0.008 percent chance of defaulting in the next three years (that is, a chance of less than 1 in 10,000). The real chance, it turned out, was 0.1 percent (1 in 1,000). The agencies underestimated the probability of default by more than a factor of 10. With securities rated A+ the error was even worse, with the agencies underestimating the probability of default by more than a factor of 300!" (p. 119) [Note single exclamation point restraint. ;)]

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