Optimism bias is well-known. Here are some examples.
It’s conventional to answer the question “How are you doing?” with “well”, regardless of how you’re actually doing. Why?
People often believe that it’s inherently good to be happy, rather than thinking that their happiness level should track the actual state of affairs (and thus be a useful tool for emotional processing and communication). Why?
People often think their project has an unrealistically high chance of succeeding. Why?
People often avoid looking at horrible things clearly. Why?
People often want to suppress criticism but less often want to suppress praise; in general, they hold criticism to a higher standard than praise. Why?
The parable of the gullible king
Imagine a kingdom ruled by a gullible king. The king gets reports from different regions of the kingdom (managed by different vassals). These reports detail how things are going in these different regions, including particular events, and an overall summary of how well things are going. He is quite gullible, so he usually believes these reports, although not if they’re too outlandish.
When he thinks things are going well in some region of the kingdom, he gives the vassal more resources, expands the region controlled by the vassal, encourages others to copy the practices of that region, and so on. When he thinks things are going poorly in some region of the kingdom (in a long-term way, not as a temporary crisis), he gives the vassal fewer resources, contracts the region controlled by the vassal, encourages others not to copy the practices of that region, possibly replaces the vassal, and so on. This behavior makes sense if he’s assuming he’s getting reliable information: it’s better for practices that result in better outcomes to get copied, and for places with higher economic growth rates to get more resources.
Initially, this works well, and good practices are adopted throughout the kingdom. But, some vassals get the idea of exaggerating how well things are going in their own region, while denigrating other regions. This results in their own region getting more territory and resources, and their practices being adopted elsewhere.
Soon, these distortions become ubiquitous, as the king (unwittingly) encourages everyone to adopt them, due to the apparent success of the regions distorting information this way. At this point, the vassals face a problem: while they want to exaggerate their own region and denigrate others, they don’t want others to denigrate their own region. So, they start forming alliances with each other. Vassals that ally with each other promise to say only good things about each other’s regions. That way, both vassals mutually benefit, as they both get more resources, expansion, etc compared to if they had been denigrating each other’s regions. These alliances also make sure to keep denigrating those not in the same coalition.
While these “praise coalitions” are locally positive-sum, they’re globally zero-sum: any gains that come from them (such as resources and territory) are taken from other regions. (However, having more praise overall helps the vassals currently in power, as it means they’re less likely to get replaced with other vassals).
Since praise coalitions lie, they also suppress the truth in general in a coordinated fashion. It’s considered impolite to reveal certain forms of information that could imply that things aren’t actually going as well as they’re saying it’s going. Prying too closely into a region’s actual state of affairs (and, especially, sharing this information) is considered a violation of privacy.
Meanwhile, the actual state of affairs has gotten worse in almost all regions, though the regions prop up their lies with Potemkin villages, so the gullible king isn’t shocked when he visits the region.
At some point, a single praise coalition wins. Vassals notice that it’s in their interest to join this coalition, since (as mentioned before) it’s in the interests of the vassals as a class to have more praise overall, since that means they’re less likely to get replaced. (Of course, it’s also in their class interests to have things actually be going well in their regions, so the praise doesn’t get too out of hand, and criticism is sometimes accepted) At this point, it’s conventional for vassals to always praise each other and punish vassals who denigrate other regions.
Optimism isn’t ubiquitous, however. There are a few strategies vassals can use to use pessimism to claim more resources. Among these are:
Blame: By claiming a vassal is doing something wrong, another vassal may be able to take power away from that vassal, sometimes getting a share of that power for themselves. (Blame is often not especially difficult, given that everyone’s inflating their impressions)
Pity: By showing that their region is undergoing a temporary but fixable crisis (perhaps with the help of other vassals), vassals can claim that they should be getting more resources. But, the problem has to be solvable; it has to be a temporary crises, not a permanent state of decay. (One form of pity is claiming to be victimized by another vassal; this mixes blame and pity)
Doomsaying: By claiming that there is some threat to the kingdom (such as wolves), vassals can claim that they should be getting resources in order to fight this threat. Again, the threat has to be solvable; the king has little reason to give someone more resources if there is, indeed, nothing to do about the threat.
Pity and doomsaying could be seen as two sides of the same coin: pity claims things are going poorly (but fixably) locally, while doomsaying claims things are going poorly (but fixably) globally. However, all of these strategies are limited to a significant degree by the overall praise coalition, so they don’t get out of hand.
Back to the real world
Let’s relate the parable of the gullible king back to the real world.
The king is sometimes an actual person (such as a CEO, as in Moral Mazes, or a philanthropist), but is more often a process distributed among many people that is evaluating which things are good/bad, in a pattern-matching way.
Everyone’s a vassal to some degree. People who have more power-through-appearing-good are vassals with more territory, who have more of an interest in maintaining positive impressions.
Most (almost all?) coalitions in the real world have aspects of praise coalitions. They’ll praise those in the coalition while denigrating those outside it.
Politeness and privacy are, in fact, largely about maintaining impressions (especially positive impressions) through coordinating against the revelation of truth.
Maintaining us-vs-them boundaries is characteristic of the political right, while dissolving them (and punishing those trying to set them up) is characteristic of the political left. So, non-totalizing praise coalitions are more characteristic of the right, and total ones that try to assimilate others (such as the one that won in the parable) are more characteristic of the left. (Note, totalizing praise coalitions still denigrate/attack ones that can’t be safely assimilated; see the paradox of tolerance)
Coalitions may be fractal, of course.
A lot of the distortionary dynamics are subconscious (see: The Elephant in the Brain).
This model raises an important question (with implications for the real world): if you’re a detective in the kingdom of the gullible king who is at least somewhat aware of the reality of the situation and the distortonary dynamics, and you want to fix the situation (or at least reduce harm), what are your options?