Unrealistic optimism is all around us, and it is a well-documented psychological phenomenon. The purpose of this study is to take a critical approach of the main research done in the area and to analyze the important impact that it has in many economic and managerial contexts. We also analyze current trends in terms of entrepreneurship by policy makers. We show that most people are prone to groundless optimism when faced with economic and managerial decisions and yet economists, managers and policy makers still ignore it or fail to understand its characteristics. Since the policy and welfare implications of such a (neglected) widespread phenomenon are vast, we challenge the current public policy trend of extending lending to business start-ups, on the grounds that it may create a real road to ruin. A careful analysis of the psychology of over-optimism from an economics and managerial perspective is original and extremely valuable in a world where uncertainty dominates. Critical review of the existing literature on unrealistic optimism and its implications for economic and managerial decision making.
