The previous sections have presented evidence against a number of potential mechanisms for the link between dispositional optimism and labor-market outcomes, including many offering an alternative to a belief-based explanation. Optimists are not simply more skilled, at least not as measured on a wide range of observable characteristics. They do not choose different industries to work in. They do not appear to be less selective about their employers. They do not have specific inside information that provides a basis for their positive generalized expectations. And, importantly, the behaviors driving these results matter above and beyond the qualities observed by their peers.
What then does relate dispositional optimism to labor-market outcomes? A number of candidate mechanisms have a mixed impact, theoretically. For example, optimists may be more motivated to work hard to achieve goals since they believe their additional effort will be rewarded. But they may also be less motivated to work hard to achieve goals if they believe the goal is likely to be achieved anyway, or that all will be okay regardless of whether it is achieved. Similarly, optimism might help overcome excessive risk aversion (Kahneman and Lovallo, 1993), but also can lead to excessive risk taking via economic- (Puri and Robinson, 2007) or health-related (Weinstein, 1982) choices.
But there are other consequences of optimism that are unequivocally positive. One of the strongest correlates of dispositional optimism is positive coping (Scheier et al., 1994).
Optimists are more likely to actively engage problems, positively reframe situations, plan a course of action, and rely on social support (Scheier et al., 1986). The evidence we find that is consistent with this is the high priority optimists place on developing relationships while in school. Indeed, the likelihood of listing relationships as the top priority (vs.
grades and job) has one of the strongest relations to the LOT-R of anything we observe.
Related work in psychology provides evidence that optimists are more willing to disengage from unrealistic courses of action (Aspinwall and Richter, 1999) and re-engage in new ones (Rasmussen et al., 2006). This line of inquiry is particularly important considering that the self-regulation model underlying dispositional optimism (Scheier and Carver, 1985) would otherwise suggest optimists will over-persist on unrealistic goals. We find evidence consistent with optimal persistence by optimists, as they are as likely as pessimists to switch fields of interest during their first year of school but actually less likely in their second. Given our broader results, this particular balance between flexibility and persistence seems to be rewarded in the labor market.
A final set of mechanisms that are unequivocally positive for optimism are self-fulfilling prophecies (cf. Murray et al., 1996). While it has long been established that peoples expectations for others influence their behavior (cf., Snyder et al., 2003), there
is growing evidence that peoples expectations for themselves influence behavior (Shih et al., 1999). To the extent that this occurs, we would expect those with optimistic beliefs to perform better even after controlling for all objective circumstances, observed and unobserved. This is a potentially very important process that deserves greater attention, but requires an experimental setting.
Each of these channels provides a psychological mechanism for the observed connec-tion between disposiconnec-tional optimism and the economic outcomes we observe. Our data do not allow us to test these mechanisms directly. Of course, because we cannot ma-nipulate the trait of interest directly we cannot conclude that there is no omitted factor associated with optimism that is truly driving the behavior we observe. This problem is endemic to research on traits. Our survey design has allowed us to narrow the range of possible mechanisms by which optimism relates to important outcomes such as job searches. Further narrowing is an important task for future research.
7 Conclusion
Psychologists distinguish between two types of optimism: dispositional and situational optimism—or, paraphrasing from Peterson (2000), big optimism and little optimism.
The distinction is between personality and perception. Big optimism is a broad, perva-sive view of the future in which favorable outcomes are perceived to be more likely than is perhaps warranted. Do good things tend to happen to me more than bad? Answers to questions like this reflect dispositional optimism. Little optimism, on the other hand, is a belief that an outcome in a particular domain is more likely than it perhaps actually is.
Will my division outperform the other divisions in my firm? How likely is it that I will sink this putt? Answers to these questions reflect a more narrow, situational optimism.
The vast majority of empirical work in behavioral finance and economics has focused on the latter conception of optimism, and pointed out the bad outcomes associated with
overconfidence in one’s own ability or over-optimism about future outcomes. In short, for most economists, the optimism glass is half empty, not half full.
This paper is different. We focus on dispositional optimism, a personality trait, and show how it is related to a range of positive outcomes in the labor market. At some level, our aim is to provide a psychological microfoundation for a growing body of empirical work in economics that illustrates the importance of traits for economic outcomes. Indeed, we find that optimists search more efficiently for jobs, get jobs faster and more easily than others, and are more likely to be promoted after two years’ time.
In many respects, this supports the view of optimism espoused in Taylor and Brown (1988, 1994), who argue that optimism has salutary consequences.
Perhaps the key advantage of our research strategy over past studies linking optimism to economic outcomes is the timing of our measurement. By creating our own panel, we can measure optimism when MBA students first arrive, before they experience success or hardship in the MBA program, thus avoiding the look-back bias that complicates most cross-sectional work. Indeed, by explicitly linking ex ante optimism measurements to ex post measures of how respondents are viewed by others, we can also control for explanations that center around the likeability of optimists driving their success. To be sure, optimists are certainly more charismatic, but this charisma is not responsible for their labor market success.
The effect sizes we measure are small. Indeed, this is common in other studies linking optimism to economic choices. For example, Landier and Thesmar (2009) report modest, but highly statistically significant, effects of optimism on lending choice among French entrepreneurs. In a recent review of 84 studies relating dispositional optimism to health outcomes, researchers found systematic but relatively small effects, averaging 0.17 standard deviations (Rasmussen et al 2009).
Nevertheless, optimism may have a large effect on cumulative circumstances (such as longevity) through the accretion of small choices over time. Because dispositional
optimism is ubiquitous to a wide range of decision settings, it affects multiple interac-tions and decision throughout the day, every day. Thus, dispositional optimism has a unique potential to shape lives, even if only one thin layer at a time. The accretion, or accumulation, of small choices into larger outcomes may be the most parsimonious way to understand how personality traits fixed early in life manifest in large, long-lasting effects later in life.
By what means does this accretion occur? While there is considerable evidence that dispositional optimism is positively related to many favorable outcomes, especially regarding health, there is relatively little on the mechanisms underlying that relation.
Recent work in psychology points to the possibility that dispositional optimists are better able to internalize negative feedback than others, and that they have better coping skills. Life is filled with innumerable occasions in which people must carefully balance competing forces: the desire to abandon a goal when it proves unattainable or undesirable, and the need to stay the course when temporary setbacks occur. Coping and resilience are surely a part of the complex balance, and indeed may be a central component of the non-cognitive skills that labor economists have identified as important for work-life success. Given the concurrent efforts taking place in psychology, as well as in numerous areas of economics, a full account of the link between dispositional optimism and economic outcomes is a rich area for future research.
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Table 1: Participation Characteristics
This table presents demographic characteristics for the proportion of the student population that participated in our survey, as well as for the student population as a whole. Prior Salary is the highest reported salary that an incoming student reported earning in a job prior to attending the MBA. GMAT total, verbal and quantitative are scores on standardized entrance exams for the MBA degree. Business, engineering, arts denotes the fraction of each sample that earned an undergraduate degree in business administration, engineering, or arts and sciences. Grade point average is on a 4.0 scale. 232 students participated in the first four waves of the study.
Variable: Overall Declined Participated t-test
Male 0.78 0.77 0.78 -0.26
Age 29.13 29.53 28.88 1.93
Married 0.34 0.32 0.36 -0.97
US Citizen 0.53 0.41 0.61 -3.94
Prior Salary 59,053 51,862 63,547 -2.48
Ethnicity
Table 2: The Demographics of Optimism
This table models optimism as a function of demographic characteristics, talent measures, and measures of how subjects are perceived by others. Prior Salary is the maximum reported salary prior to attending the MBA program, and is expressed in 10K units. Charisma, Future CEO, Optimist and Best friend are scores that each respondent received from a school-wide survey asking, for instance, “Who is the most charismatic? Name the top 5.” One, two and three asterisks denote significance at the 10%, 5% and 1% level, respectively. Robust standard errors are reported in parentheses below point estimates.
White 1.228 0.813 1.001 0.900 1.041 0.866
(0.80) (0.82) (0.82) (0.82) (0.84) (0.82)
Black 1.346 1.404 1.274 1.233 1.183 1.283
(1.99) (1.99) (2.02) (2.01) (2.02) (2.02)
Hispanic -0.279 -0.454 -0.401 -0.529 -0.539 -0.393
(1.40) (1.41) (1.43) (1.43) (1.43) (1.43)
Asian 0.171 -0.007 0.089 -0.084 -0.070 0.048
(0.81) (0.83) (0.84) (0.84) (0.85) (0.84)
Male 1.070* 1.055* 1.082* 1.289** 1.222** 1.098*
(0.60) (0.60) (0.62) (0.61) (0.61) (0.61)
Married 0.215 0.410 0.278 0.379 0.375 0.310
(0.50) (0.50) (0.50) (0.50) (0.51) (0.51)
Age -0.066 -0.072 -0.076 -0.077 -0.090 -0.077
(0.08) (0.09) (0.09) (0.09) (0.09) (0.09)
Prior salary -0.013*** -0.014*** -0.014*** -0.013*** -0.013*** -0.014***
(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)
GMAT -0.001 0.000 -0.003 0.000 -0.002 -0.000
(0.01) (0.01) (0.01) (0.01) (0.01) (0.01)
Bus. degree 0.834 0.963 0.883 0.904 0.924 0.933
(0.67) (0.68) (0.68) (0.68) (0.68) (0.68)
Arts/Sci. degree 0.910* 0.861* 1.009** 0.937* 1.060** 0.825*
(0.50) (0.50) (0.50) (0.50) (0.50) (0.50)
Constant 23.643*** 22.663*** 25.013*** 22.822*** 25.256*** 23.172***
(4.87) (4.78) (4.82) (4.93) (5.02) (5.05)
Observations 321 310 310 310 310 310
R-squared 0.07 0.10 0.09 0.09 0.08 0.11
Table 3: The Importance of Job over Friends and Grades
The dependent variable is a dummy for whether the respondent attaches primary im-portance to the job they receive upon graduation, as opposed to the friends they make or the grades they earn. Right-hand side variables include optimism, gender, ethnicity controls, age, and a dummy for whether the student’s enrollment was sponsored by an employer. Point estimates are reported as the changes in the probability associated with a one-standard deviation change in a continuous variable, or else a shift from 0 to 1 in a binary variable. Robust standard errors are reported in parentheses below marginal probabilities.
(1) (2) (3) (4)
Optimism -0.024*** -0.023*** -0.023*** -0.025***
(0.01) (0.01) (0.01) (0.01)
Male 0.028 0.019 0.012
(0.07) (0.07) (0.07)
White -0.117 -0.116 -0.106
(0.09) (0.10) (0.10)
Black -0.307** -0.289* -0.296**
(0.14) (0.15) (0.14)
Hispanic -0.193 -0.203 -0.184
(0.13) (0.13) (0.13)
Asian -0.090 -0.100 -0.047
(0.10) (0.10) (0.11)
Age 0.006 0.002 0.005
(0.01) (0.01) (0.01)
US Citizen -0.006 -0.062
(0.08) (0.08)
Married 0.097 0.095
(0.06) (0.07)
Sponsored -0.447***
(0.05)
Observations 323 323 322 321
Table 4: Job Search Intensity
Panel A reports poisson regressions in which the dependent variable is the number of bids that a respondent placed in the auction system for interview slots in the career management center. Panel B reports OLS regressions in which the dependent variable is the number of companies contacted for interviews (this includes on- and off-campus efforts) as reported by the student. Dummies for white, black, hispanic, and asian ethnicity are estimated but not reported (none are significant, except for white ethnicity in Panel B, which is negative). Demographics include a gender dummy, age, and marital status. Robust standard errors are reported in parentheses below point estimates. Constants are estimated but suppressed. Panel A includes 320 observations; Panel B, 230 observations.
Panel A: Interview Bids
(1) (2) (3) (4) (5)
Optimism -0.026* -0.025* -0.027* -0.025* -0.024*
(0.01) (0.01) (0.01) (0.01) (0.01)
Ethnicity No Yes Yes Yes Yes
Demographics No Yes Yes Yes Yes
Panel B: Companies Contacted
(1) (2) (3) (4) (5)
Optimism -0.909*** -0.670*** -0.754*** -0.747*** -0.700***
(0.22) (0.20) (0.21) (0.21) (0.22)
Ethnicity No Yes Yes Yes Yes
Demographics No Yes Yes Yes Yes
R-squared 0.04 0.14 0.18 0.19 0.23
Table 5: Optimism and Search Efficiency
The dependent variable is job search efficiency: the number of interviews the student received scaled by the number of bids that a respondent placed in the auction system. Dummies for white, black, hispanic, and asian ethnicity are estimated but not reported (none are significant).
Age and marital status are estimated as demographic controls but are suppressed. Robust standard errors are reported in parentheses below point estimates. Panel A includes 320 observations; Panel B, 230 observations.
(1) (2) (3) (4)
Optimism 0.018** 0.018** 0.021*** 0.020**
(0.01) (0.01) (0.01) (0.01)
Male -0.181*** -0.188** -0.187**
(0.07) (0.07) (0.07)
US Citizen 0.184** 0.183** 0.182**
(0.08) (0.08) (0.08)
GMAT (total) -0.001 -0.001
(0.00) (0.00)
Prior salary 0.001 0.001
(0.00) (0.00)
GPA(term 1) 0.095 0.094
(0.14) (0.14)
Job Importance -0.060
(0.06)
Constant -0.081 0.019 0.079 0.138
(0.17) (0.36) (0.77) (0.77)
Observations 268 267 265 265
Ethnicity Yes Yes Yes Yes
Demographics Yes Yes Yes Yes
R-squared 0.02 0.09 0.10 0.11
Table 6: First-year Internship Outcomes
The dependent variable is a dummy for whether the respondent had successfully secured a summer internship by the beginning of Term 4, which occurs in late March. Point estimates are reported as changes in the probability associated with a one-standard deviation change in a continuous variable, or else a shift from 0 to 1 in a binary variable. Robust standard errors are reported in parentheses below marginal probabilities.
(1) (2) (3) (4) (5)
Optimism 0.023*** 0.019** 0.021*** 0.022*** 0.019**
(0.01) (0.01) (0.01) (0.01) (0.01)
Male -0.163** -0.177** -0.175** -0.194**
(0.07) (0.07) (0.07) (0.08)
Black -0.432** -0.484*** -0.478*** -0.531***
(0.21) (0.18) (0.18) (0.15)
White 0.109 -0.011 0.005 -0.043
(0.10) (0.11) (0.11) (0.11)
Hispanic 0.046 0.013 0.032 0.025
(0.15) (0.15) (0.15) (0.16)
Asian -0.063 -0.073 -0.041 -0.083
(0.10) (0.10) (0.10) (0.11)
Age -0.023** -0.023** -0.022** -0.035***
(0.01) (0.01) (0.01) (0.01)
US Citizen 0.184** 0.153* 0.161**
(0.08) (0.08) (0.08)
Married 0.130* 0.126* 0.148**
(0.07) (0.07) (0.07)
Sponsored -0.254** -0.199*
(0.11) (0.12)
Expected internships 0.043
(0.03)
Observations 263 263 262 261 250
Table 7: Stratified Hazard Estimates of Receiving First Job Offer
This table reports Cox proportional hazard models of the hazard of receiving a job offer. The hazard of a job offer between time t and t + 1 is the probability of receiving an offer in that interval conditional on not yet having received an offer. The baseline hazard is stratified according to the intended field of employment (Marketing, Management, different types of finance jobs, Consulting). Point estimates are reported as hazard impact factors; i.e., they scale the baseline hazard up or down multiplicitavely by the magnitude of the point estimate. Standard errors are reported in parentheses below point estimates. Job Importance is a dummy for whether the student reported that his/her top priority was the job they received upon graduation. Intern Job Offer is a dummy for whether they received an offer from the employer with whom they held a summer internship. Sponsored is a dummy for whether their enrollment was sponsored by an employer. GPA BTA is the degree to which the student’s expectations of their first term grade point average exceeded their actual GPA.
(1) (2) (3) (4) (5)
Optimism 1.060*** 1.049** 1.063** 1.088** 1.091**
(0.02) (0.02) (0.03) (0.04) (0.04)
US Citizen 1.589* 1.547* 1.865*** 1.855**
(0.38) (0.36) (0.45) (0.46)
Observations 209 209 197 164 163
Table 8: Getting Promoted
The dependent variable in Panel A is a dummy for whether the respondent was still working at the same company as the one they joined upon graduation. The depen-dent variable in Panel B is a dummy for whether they had been promoted in that job.
The dependent variable in Panel A is a dummy for whether the respondent was still working at the same company as the one they joined upon graduation. The depen-dent variable in Panel B is a dummy for whether they had been promoted in that job.