By Richard Thaler and Cass Sunstein.
People are unrealistically optimistic even when the stakes are high. About 50 percent of marriages end in divorce, and this is a statistic most people have heard. But around the time of the ceremony, almost all couples believe that there is approximately a zero percent chance that their marriage will end in divorce — even those who have already been divorced! (Second marriage, Samuel Johnson once quipped, ‘is the triumph of hope over experience.’) A similar point applies to entrepreneurs starting new businesses, where the failure rate is at least 50 percent. In one survey of people staring new businesses (typically small businesses, such a contracting firms, restaurants, and salons), respondents were asked two questions: (a) What do you think is the chance of success for a typical business like yours? (b) What is your chance of success? The most common answers to these questions were 50 percent and 90 percent, respectively, and many said 100 percent to to the second question.
Unrealistic optimism can explain a lot of individual risk taking, especially in the domain of risks to life and health.
Additional experiments, growing out of Asch’s basic method, find large conformity effects for judgments of many different kinds. Consider the following finding. People were asked, ‘Which one of the following do you feel is the most important problem facing our country today?’ Five alternatives were offered: economic recession, educational facilities, subversive activities, mental health, and crime and corruption. Asked privately, a mere 12 percent chose subversive activities. But when exposed to an apparent group consensus unanimously selecting that option, 48 percent of people made the same choice!