Unrealistic optimism in the eye of the storm: Positive bias towards the consequences of COVID-19 during the second and third waves of the pandemic

Abstract

Research conducted at the outset of the pandemic shows that people are vulnerable to unrealistic optimism (UO). However, the Weinstein model suggests that this tendency may not persist as the pandemic progresses. Our research aimed at verifying whether UO persists during the second (Study 1) and the third wave (Study 2) of the pandemic in Poland, whether it concerns the assessment of the chances of COVID-19 infection (Study 1 and Study 2), the chances of severe course of the disease and adverse vaccine reactions (Study 2). We show that UO towards contracting COVID-19 persists throughout the pandemic. However, in situations where we have little influence on the occurrence of the event, the participants do not show UO. The exceptions are those who have known personally someone who has died from a coronavirus infection. These results are discussed in terms of self-esteem protection and the psychological threat reduction mechanism.

Does personal experience with COVID-19 impact investment decisions? Evidence from a survey of US retail investors

“…Second, salience theory suggests that investors are prone to focus on the most salient information available when making financial decisions which results in overestimating future returns, but in reality salient assets end up overpriced and with low future returns ( Bordalo et al, 2012 ; Itti & Koch, 2000 ; Kahneman & Tversky, 1973 ). Third, optimism bias posits that investors selectively focus their decisions on salient news ( Bansal, 2020 ), and even more so people with higher exposure to the virus (i.e., more vulnerable from a health perspective) are more likely to exhibit optimism bias and take more risks, contrary to their mortality risk ( Asimakopoulou et al, 2020 ; Fragkaki et al, 2021 ; Gassen et al, 2021 ); Maksim et al, 2022 ). Considering all three theories combined together with the fact that retail investors are more likely to extrapolate past information into future returns ( Da et al, 2021 ), suggests that personal experience with COVID-19 drives investments mainly due to behavioural biases, as the effect holds when controlling for other financial and demographic factors at the same time.…”

“… Fragkaki et al (2021) similarly find that individuals with high optimism bias engaged in less protective behavioural changes and were less satisfied with government response. Maksim et al (2022) posit that optimism bias towards contracting COVID-19 persists throughout the pandemic, except for situations where participants have little to no influence on the occurrence of the event. The exception to this is those who knew personally someone who died from COVID-19, as these individuals persisted in showing optimism bias in any situation ( Maksim et al, 2022 ).…”

“… Maksim et al (2022) posit that optimism bias towards contracting COVID-19 persists throughout the pandemic, except for situations where participants have little to no influence on the occurrence of the event. The exception to this is those who knew personally someone who died from COVID-19, as these individuals persisted in showing optimism bias in any situation ( Maksim et al, 2022 ). These findings suggest that optimism bias can persist during a pandemic, and that this bias can even be more pronounced for investors who have personal experience with the virus.…”

“…Our main result regarding the positive relationship between personal experience with COVID-19 and retail investments is explained through different behavioural finance theories, namely terror management theory, salience theory, and optimism bias. Terror management theory suggests that mortality reminders lead people to place more value on money and wealth creation ( Arndt, Solomon, Kasser, & Sheldon, 2004 ; Kasser & Sheldon, 2000 ; Rindfleisch, Burroughs, & Wong, 2008 ; Zaleskiewicz, Gasiorowska, Kesebir, Luszczynska, & Pyszczynski, 2013 ), salience theory posits that retail investors in particular tend to consider the most salient information and overestimate future returns ( Bordalo, Gennaioli, & Shleifer, 2012 ; Bordalo, Gennaioli, & Shleifer, 2013 ; Itti & Koch, 2000 ; Kahneman & Tversky, 1973 ), and optimism bias is associated with high trading volumes ( Glaser & Weber, 2007 ; Iqbal, 2015 ; Puri & Robinson, 2007 ) and it is higher in people who are more vulnerable to COVID-19 ( Asimakopoulou et al, 2020 ; Fragkaki, Maciejewski, Weijman, Feltes, & Cima, 2021 ; Gassen et al, 2021 ; Maksim et al, 2022 ) as observed in our study. We contribute to these streams of literature by showing that COVID-19 vulnerable people invest more as a result of their personal experience with the pandemic.…”