Division of the Humanities and Social Sciences California Institute of Technology Pasadena, California 91125 on the Evolutionary Emergency of Optimism

Successful individuals were frequently found to be overly optimistic. These Þnding are puzzling, as one could expect that realists would perform best in the long run. We show, however, that in a large class of strategic interactions of either cooperation or competition, the equilibrium payoffs of optimists may be higher than those of realists. This is because the very fact of being optimistic changes the game, and drives the adversary to change her equilibrium behavior, possibly to the beneÞt of the optimist. Suppose, then, that a population consists initially of individuals with various perceptional tendencies — pessimists and optimists to various extents, as well as of realists. Individuals meet in pairs to interact, and more successful tendencies proliferate faster. We show that as time goes by, some moderate degree of optimism will take over, and outnumber all other tendencies. ∗The Division of Humanities and Social Sciences, California Institiute of Technology, mail code 22877, Pasadena, CA 91125, and The Eitan Berglass School of Economics, Tel Aviv University 69978, Israel. email: [email protected] †Department of Economics, Northwestern University, 2003 Sheridan Road, Evanston, IL 60208, and the Eitan Berglass School of Economics, Tel Aviv University, Tel Aviv 69978, Israel. email: [email protected].