Few people have crushed more bright-eyed, entrepreneurial dreams than Mark Cuban.
At first, that might sound like a rough assessment. After all, Cuban has invested a quarter of a billion dollars in bringing other people’s hopes to life. But, if Cuban’s rejection rate—which hovers right around 80% on ABC’s Shark Tank—teaches us anything, it’s a lesson profoundly contrary to popular wisdom.
“They think,” Cuban said via email, “they can find a solution for any problem. Of course, I can. But everyone else. Not so much. :)”
Joking aside, belief in our ideas and abilities is often regarded as the most valuable trait we can cultivate. After all, optimism isn’t just physically healthy, it also fuels passion, emboldens risk, and inspires courage.
In his 2011 classic, Thinking, Fast and Slow, Nobel Prize-winner Daniel Kahneman called optimism the “engine of capitalism”:
Optimistic individuals play a disproportionate role in shaping our lives. Their decisions make a difference; they are the inventors, the entrepreneurs, the political and military leaders — not average people.
And yet, for all its benefits, optimism has a dark side.
“Most of us,” Kahneman continued, “view the world as more benign than it really is, our own attributes as more favorable than they truly are, and the goals we adopt as more achievable than they are likely to be.”
From those assessments, two questions arise. First, what makes optimism so dangerous? And second, how do we foster healthy pessimism without losing hope?
When half full goes all wrong
To understand the danger of optimism, the first thing we have to come to grips with is: Fear.
Humans are hardwired for threat detection. For the most part, our fight-or-flight impulse is a good thing. It’s what made our ancestors our ancestors.
When it comes to decisionmaking, things get trickier. Psychologists call the phenomenon loss aversion: the universal drive to avoid risk even at the expense of equal or greater gain.
Just how influential is this drive? Experiments by behavioral economists like Richard Thaler gauge the motivational sway between loss and gain at roughly two to one. “Losses,” in Thaler’s words, “hurt about twice as much as gains make you feel good.”
Given our sensitivity, wouldn’t loss aversion keep us safe from optimism’s bias? Perhaps not.
When I put the question to Kahneman directly, he explained:
A combination of optimism and loss aversion is very common, causing people to take risks because they don’t acknowledge their existence. They take risks while feeling both confident and prudent.
Fear and optimism are two sides of the same coin. This is especially true in situations where not only the odds are against us, but control is too.
Success demands a host of serendipitous events—the right development, timing, marketing, sales, supply, retention, and blunders from the competition. Rather than contemplate those requirements, we fall back on optimism’s mantra: “I think I can.”
The result? Again, here’s Kahneman:
Whenever you look at a great success you are likely to find an optimist. Optimists are great for the economy because their unreasonable risk-taking is an engine of innovation… On average, however, they are not particularly good for themselves. The fact that most or all successful people are optimists does not guarantee that all optimists are successful.
Compounding optimism’s danger is another bias: Survivor Selection. Success sells, which means if we only pay attention to the headlines, we’re likely to get a warped sense of how uncommon success truly is. For every magazine lionizing an outlier, countless bodies litter the same path.
That’s why, when failure rears its head, we marvel and ask, “How could they be so stupid?” In truth, their stupidity stems from the very same place as our own. Not only do we overestimate our gifts, abilities, and insights, we chronically underestimate costs, timelines, and challenges.
Why? Because loss aversion and survivor bias numb us to the realities of life. Just like any good pain killer, optimism soothes without treating the disease.
What’s more, it can also turn on us. That’s what New York Times Bestseller Lewis Howes told me:
Optimism can go south and turn into stress, anger, or frustration when the reality of my life doesn’t match up to the highlight reels I see around me on social media — especially if I’m struggling in an area where it seems like everyone around me is doing awesome.
At work, optimism can even have the opposite effect of its intention. “While it can inspire us to action,” Anthony Stephan, a principal at Deloitte, explains, “it also has the potential to unintentionally stifle the creative voices of others, which can limit your own opportunity for growth.”
Strangely enough, Stephan goes on:
What I had failed to realize was that with all the optimism I was trying to create, I was actually limiting the potential for ideas from others. Instead, the more positive and animated my words became, the less people were willing to share, out of fear that their ideas might not be received with the same enthusiasm I had for my own.
Don’t misunderstand; optimism can be a powerful force for good … right up to the point when it all goes wrong.
The bright side of embracing the dark side
If optimism fuels risk-taking and risk-taking drives innovation, then retaining optimism is essential. But so is tempering it.
How? By embracing four habits.
First, start planning your funeral. In the wake of any great failure, wise organizations conduct postmortems: business-focused autopsies that diagnose where things went wrong.
Instead of waiting until it’s too late, analyze your demise before you begin. It’s a practice known as the premortem. After gathering stakeholders, ask your team, “A year has passed, and our project went down in flames. Why’d we fail?” Participants then talk through and record every possible cause of their foretold collapse.
You can take the same approach in your personal life as well. As Brad Stulberg explains in To Reach Your Goals, Imagine You Already Tried and Failed:
It may seem like the negative thinking inherent to a premortem would work against self-belief and confidence. But if anything, it actually works toward it. When you force yourself to become aware of all that could go wrong, you become more likely to take the necessary steps to ensure that things go right.
The key is to divorce yourself from subjectivity and adopt an “outside” view. Dan Lovallo and Daniel Kahneman’s article Delusions of Success: How Optimism Undermines Executives’ Decisions offers detailed instructions — including a five-step formula — to do exactly that.
The second way to cultivate healthy pessimism is by facing the numbers. Broadly speaking, fifty percent of new businesses survive past five years, and only one-third make a decade. Worse, for venture-backed startups, the failure rate is anywhere between seventy-five and ninety percent.
On the personal side, a mere 4 percent to 7 percent of people quit smoking without medication or outside help: “Even experiencing a traumatic event — like the death of a loved one or being diagnosed with cancer — only leads to a 20% success rate.” Twenty-five percent of all New Year’s resolutions fail within the first two weeks. And we won’t even get into the failure rates of diet and exercise.
But why flood yourself with negative numbers?
“Many successful people,” writes Charles Duhigg, “spend an enormous amount of time seeking out information on failures. This, ultimately, is one of the most important secrets to learning how to make better decisions.”
Third, know your limitations. “The optimism or pessimism choice is a forced choice; it’s a faulty assumption,” says Dr. Daniel Goleman, author of Emotional Intelligence and the forthcoming book Altered Traits. “What you want is realistic optimism.”
While at Harvard, Goleman and his colleges researched success in a surprisingly simple way:
The test was a ring toss. Participants would take a little post and place it out as far away from them as they wanted. The further out they put it, the more points they’d get. It turned out that successful entrepreneurs — the business people who were going to last — were able to put the post pretty far out but still get the ring on. They knew what they could do.
In other words, realistic optimists are people who know the game. They know what they bring to it, what their odds are, what’s possible, and they know the most they can do to still be successful. “That,” as Goleman put it, “is the best path to follow.”
Lastly, and perhaps the best way to become a pessimist, isn’t to become one yourself. Entrepreneurs are natural optimists. In a very real sense, we have to be. The trouble comes from birds of a feather flocking together. Without getting intentional in our selection, we inevitably surround ourselves with people just like us: hopeful people, encouraging people, optimistic people.
As strange as it sounds, that’s a recipe for disaster.
“Behind every unbridled optimist,” says angel investor Joe Roos, “is a counterbalancing rationalist that ever so slightly varnishes the tint of the rose-colored glasses. It’s the delicate balance between blind ambition and rational thought that creates a dynamic environment conducive to innovation and growth.”
Every optimist needs a pessimist to tell them when they’re naked. If your whole team is just as excited as you, something’s gone wrong.
Optimism and the Truth
Going back to Cuban, his solutions echo the same principles: “Preparation, experience, and the never ending quest for more knowledge. More often than not, when I am pessimistic, it’s in areas that I haven’t had experience in or have chosen not to get involved with previously.”
In the end, facing the truth about optimism doesn’t mean abandoning it.
Rather, it means (1) envisioning all the possible ways your plan could fail, (2) staring long and hard at the odds against you, (3) knowing your limitations, and (4) sticking close to the people in your life who love you enough to be mean.
So, here’s to the pessimists and all the dreams they crush. Because dreams stay dreams, until a pessimist drags them into the light.
Aaron Orendorff is the founder of iconiContent and a regular contributor at Entrepreneur, Lifehacker, Fast Company, Business Insider and more. Connect with him about content marketing (and bunnies) on Facebook or Twitter.
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