It helps if leaders and decision makers are optimists. Optimists are charismatic people. This gives the team and others who depend upon them a lot of confidence.

Humans detect threat and build trust more through feeling than logic. If a leader gives the impression of knowing what he is doing, it usually helps build trust. (They have to deliver as well. Talking the talk is not a substitute for walking the walk.)

A good friend of mine got promoted to a leadership position recently. She wanted to remain an individual contributor. But under her company’s current circumstances, she got the responsibility of a team. According to her, she has the wrong leadership skills.

She’s a natural optimist. She has always had a knack for gaining popularity and gathering followers. She’s worried that people agree to her more than counter her because she sounds confident. Not because her ideas are great. If she doesn’t get feedback, she would make very bad business decisions.

She’s a realist, but she’s got The Optimist’s Curse. Since she makes a good impression, people generally believe that she knows what she’s doing. This is helpful in a lot of situations, but it can often hamper personal growth if there’s nobody to call you out. Especially when you are fooling yourself.

This is an interesting predicament. People usually consider optimism and charisma to be a quality. But my friend seems to feel that it’s working against her.

Let’s look at optimism from both the angles.

The Upside of Optimism

If you are going to start a new venture, it helps if you are a natural optimist. If you were a logical person, it wouldn’t be the best step to take. It would make more sense to get a steady job. In a new venture, the odds are always against you.

It takes an optimist to deal with the daily ups and downs. There’s uncertainty, anxiety, and stress. If you can wish one thing for yourself, pray to become an optimist if you choose not to take the well-trodden path.

Optimists see the world in a different way, through the lens of optimism. No matter how bleak the outside world is, their mental image is different. In their head, their chances are more favourable than usual.

Optimists feel fortunate and special, without anybody telling them so. They are cheerful and happy by default, and thus popular as well.

According to research, they can handle bad situations better than the rest of us. Chances are they’ve got better immune systems, and are healthier than others. They are resilient in adapting to failures and hardships. And their chances of developing clinical depression is minuscule.

Truth is, optimistic people have had a very big role in shaping our lives. They are decision makers, entrepreneurs, social and political leaders. Since they know that they have a lot of influence over others, it boosts their confidence. Thereby it motivates them to take more risks than others. The best part is that they stand strong even when their bets don’t pay off.

In bleak times, optimistic leaders can keep the moral of employees high. They can inspire the team to deliver results. If you have an optimistic boss, you already know that. If you are a charismatic leader, it’s because you are an optimist.

Optimism is effective whenever something requires action, even of a delusional variety. All criminal cult leaders like Charles Manson and Jim Jones were charismatic.

It takes optimism to have charisma. And it takes charisma to have others follow your plan. No matter how dangerous the plan is.

The Downside of Optimism

But it’s not all sunshine and rainbows. Optimism may sound like a superpower, but it isn’t without its kryptonite.

Optimistic people have a strong propensity to ignore reality. They are difference makers, and this knowledge can often get in the way of their thinking. They have a habit of ignoring bad news, thus falling prey to The Ostrich Effect.

They usually don’t know when to give up, so they never give up. Even when they should. They are prone to The Sunk-Cost Fallacy. They would go on pouring money and effort into a project or a venture even if it’s not giving back anything in return. This way their optimism can be costly.

Economists Ulrike Malmendier and Geoffrey Tate observed that optimistic leaders take excessive risks. The damage caused by them multiplies when the press dubs them as rockstars. Success gets into their heads. Prestigious awards and celebrity status for CEOs are generally costly for shareholders. No wonder Buffett and Munger chose to stay away from the limelight.

Successful optimists are often delusional. While explaining their success, they would give stronger preference to their skills. They would completely ignore the role of luck. Thereby falling prey to The Illusion of Control. In their delusion, these bold people think that their fate is in their own hands. They are dead wrong!

The success of a business depends on various factors. Such as the performance of competitors, and changes in market conditions. But optimists focus on what they know best — their plans and their actions.

Having said that, it isn’t very straightforward. A leader who attributes his wild success to luck wouldn’t make a very good impression, would he? A leader would have to know what they are doing.

If you are a leader or a CEO, you have to ooze confidence. We would laugh at a CEO who isn’t confident about his decisions, and attributes his company’s growth to wild luck. If you are a leader you have to appear to be right all the time, even if you are not.

If a leader knows how little they know, and admit it, society penalises them for it. Nobody, neither a CEO, nor a common person can admit their ignorance in public. Nobody would listen to them from then on. They would become a social pariah. So they have to bullshit their way. Sometimes they get consumed by it.

What We Can Do

The best benefit of optimism is resilience in the face of setbacks or failures. Optimism involves taking credit for the success, and little blame for the failure. When an angry customer slams the door on your face, it makes more sense to think, “She’s an awful person.” Rather than, “I’m an inept salesperson.”

But optimists are often plagued by The Optimism Bias. Like all cognitive biases, it has a lot of benefits, and you cannot get rid of it. But you can control it. One good way to avoid the optimism bias is by practising the method of Premortem.

This is how it works. Before taking on a project or starting a new venture, assume that it has already failed. (In case of a personal decision, assume that it has backfired.) Now, think hard and try to come up with as many possible reasons behind this failure. This way you try and uncover all the possible loopholes in your plan. Premortem helps you make an attempt to overcome all the biases in your thinking.

It’s not the most natural way to think about a problem. Uncovering all the loopholes in a plan might actually make you less confident about it. You need to practice and learn to be confident based on evidence rather than your feeling. If you work hard to remove all the weaknesses in your plan, then you might in fact have a solid plan. You gotta learn to be confident based on that.

If you cannot do a premortem on your own, appoint a Devil’s Advocate who would counter all your reasons. The VC firm a16z, headed by Marc Andreesen and Ben Horrowitz, practices this method. When one of them brings a deal on the table, the other raises hell against it.

Even if they think it’s the best idea, they’ll still make a strong case against it, and try to beat it down. Other partners pile on and share their fair share of doubts and questions.

After all this, if the person who brought the deal still has full conviction about it, they all go onboard with it. It’s “disagree and commit” by default. Karl Popper dubbed this method Falsification, and it’s the best way to get rid of a lot of bias.

Endnote

If you are an optimistic leader, you are very likely to have a lot of people follow you with blind faith. But you don’t want your advisors to be like that. It’s far worse than having no advisors at all. You need people who think and have opinions. You need people who can counter your ideas and expose loopholes. You don’t need a bunch of yes men.

But there has to be a balance. You cannot always have others bulldoze your idea into pieces. There are moments when you want to discuss and brainstorm to reach the right answer. There are other moments when you are sure about the plan. But you want to debate and make sure that there aren’t any loopholes.

We make decisions and plans in closed rooms among a small group of people. People can miss a thing or two. But when the plan goes out of the room to face reality, reality won’t miss anything. Reality doesn’t have any biases. If you are too much of an optimist you might have a tendency to ignore reality. Make sure to take all the precautions against it.

A good leader needs to have a dynamic personality. You need to be a pessimist in private when you chalk out a plan. But you need to be an optimist in public when you announce your plan.

As Benjamin Graham said, “You are not right or wrong because a thousand people agree with you. You are not right or wrong because a thousand people disagree with you. You are right because your facts and your reasoning are right.”