Correlating Optimism in Psychology with Economics

For many years psychology and economics were treated as two distinct disciplines. However, in recent years, with the emergence of behavioural economics the gap between these two formerly distinct disciplines is shrinking. In his paper Rabin (1998) writes "Because psychology systematically explores human judgment, behaviour, and well-being, it can teach us important facts about how humans differ from the way they are traditionally described by economists". Camerer, Loewenstein, and Rabin (2011) write: "at the core of behavioural economics is the conviction that increasing the realism of the psychological underpinnings of economic analysis will improve economics on its own terms". In both psychology and behavioural economics, optimism is a human trait that has been measured and studied with a very large number of implications. In the psychological literature optimism has been studied in a wide range of contexts. These include survivors of missile attacks (Zeidner and Hammer, 1992), people dealing with stresses of childbirth (Carver and Gaines, 1987), better job search outcomes (Kaniel, Massey, and Robinson, 2010) and many more. In the economic literature there have been studies examining optimism in CEO’s corporate investment behaviour (Malmendier and Tate, 2005), individual investor behaviour (Ciccone, 2011) and the behaviour of institutions (Lin, Hu, and Chen, 2005). However, to the best of my knowledge there have been no studies analysing whether optimism measured in psychology correlates with optimism measured in economics. I hope to contribute to the literature by filling this gap. This will be done by applying the Life-Orientation-Test-revised (LOT-R) developed by Scheier, Carver, and Bridges (1994) to measure psychological optimism and the midweight method developed