A Bounded Rationality Account of Wishful Thinking

People tend towards wishful thinking, in which they overestimate the probability of favorable outcomes and underestimate the probability of unfavorable outcomes. Many explanations for this phenomenon focus on its irrationality. We explore whether wishful thinking could actually help people make better decisions given that they have limited cognitive resources. We consider a situation in which multiple decisions must be made over a period of time, where the consequences of these decisions are not fully determined. We model this situation as a Markov decision process, and incorporate limited cognitive resources by varying the amount of time in the future that the agent considers the consequences of its decisions. Through simulations, we show that with limited cognitive resources, this model can exhibit better performance by incorporating a bias towards wishful thinking. This advantage occurs across a range of decision-making environments, suggesting that the same effect could be applicable to many real life scenarios.