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People revise their risk estimates substantially when they learn the odds are better than they thought, but barely revise them when they learn the odds are worse. This selective updating, which tracks weaker neural coding of undesirable errors in the frontal cortex, lets optimistic beliefs survive repeated contact with contrary evidence.
Individuals are often confident about their own future, their family and their prospects while being gloomy about their country, the economy or humanity at large. Optimism bias is a personal, self-directed forecast error rather than a general positive worldview.
Envisioning future events draws on the same hippocampal and cortical systems used to recall past episodes, recombining stored fragments into new scenarios. Because simulation is built from memory, it is constructive and can be biased, and it is this flexibility that allows the brain to generate rosier-than-warranted futures.
Expecting good outcomes lowers stress and anxiety, supports physical health and motivates effort and persistence, which can help bring the expected outcomes about. Mildly depressed people tend to forecast more accurately, suggesting that realistic prediction is not the psychologically healthy default.
Much of the value of a good event is consumed before it happens, through the pleasure of looking forward to it. This explains preferences such as delaying a treat to savor the wait, and it frames optimism as a way of manufacturing present well-being out of imagined futures.
Since the bias is hardwired and useful, the sensible response is to retain the hopeful outlook while building external safeguards against its costs. Examples include buying insurance, adding margins to project budgets and timelines, and getting regular medical screenings even when you feel sure you are fine.