Excessive optimism is linked to lower cognitive ability. It’s well known that those with too much of an optimistic outlook on life can make poor decisions. Research has shown that people with an inflated opinion of their own abilities perform poorly in tests for verbal fluency, problem-solving, numerical reasoning and memory, while those with higher cognitive abilities tend to be more realistic — even pessimistic — about the future.

Data was examined from a UK survey of 36,000 households, which included the results of cognitive tests. Over a period of ten years, researchers examined the annual financial records of optimistic people and compared their expectations of financial wellbeing before comparing them with actual outcomes.

The results were inevitable… plans based on overly optimistic beliefs encouraged poor decisions which delivered worse outcomes than more realistic beliefs. The problem is that being too optimistic about outcomes causes people to delude themselves

Based on research from the University of Bath.