How prevalent is wishful thinking? Misattribution of arousal causes optimism and pessimism in subjective probabilities

People appear to be unrealistically optimistic about their future prospects, as reflected by theory and research in the fields of psychology, organizational behavior, behavioral economics, and behavioral finance. Many real-world examples (e.g., consumer behavior during economic recessions), however, suggest that people are not always overly optimistic. I suggest that people can be both overly optimistic and pessimistic in their beliefs about future events, depending on whether they focus on success or on failure. More specifically, people judge the likelihood of desirable and undesirable events to be higher than similar neutral events because they misattribute the arousal those events evoke to their greater perceived likelihood. I demonstrated this stake-likelihood effect in 4 studies. In Study 1, arousal was shown to increase likelihood judgments. Study 2 demonstrated that such elevated likelihood judgments are due to misattribution of the arousal from having a stake in the outcome. Study 3 demonstrated that such misattribution of arousal occurs for desirable and undesirable events. Study 4 showed the effects of optimism and pessimism on likelihood judgments in a field setting with soccer fans. Together, the findings suggest that wishful thinking might be less prevalent than previously believed. Pessimism might be as likely as optimism in subjective probabilities.