Are Entrepreneurs Delusionally Optimistic?

And if so, is that a bad thing?

In a profile of Daniel Kahneman , one of the pioneers of behavioral economics and a Nobel prize winner, he says that delusional optimism drives capitalism. Here is an excerpt:

“Entrepreneurs are people who take risks and, by and large, don’t know they are taking them,” he argues. “This happens with mergers and acquisitions, but it also happens at the level of small-scale entrepreneurs. In the United States, a third of small businesses fail within five years, but when you interview those people, they individually think they have between 80 percent and 100 percent chance of success. They just don’t know.”

However, from the article and from other statements he made, he is somewhat ambiguous about whether this is a good thing or not. On the one hand he says that delusional optimism drives capitalism, but on the other hand, he seems to say it’s also the horrible quality that got us into the current financial mess.

My question is what would the world look like if there weren’t people who were delusionally optimistic?

Would we have half the inventions and luxuries we have today?

On the whole, even with the bubbles, warts and all, is the world better off?

via Finance & Development, September 2009 – Questioning a Chastened Priesthood