Although the policy and welfare implications of such a. This bias has important implications in many economic and managerial contexts and the authors present evidence of it. The purpose of this paper is to discuss the meaning of being unrealistically optimistic. Originality/value – The paper shows the link between irrational behaviour and mortgage and corporate credit markets in Portugal and Spain and suggests paternalistic policies that should be encouraged. Unrealistic optimism is a welldocumented psychological phenomenon. The paper therefore presents a conservative approach to paternalistic measures that policy makers should consider adopting. Practical implications – Because ignoring such biases may simply lead borrowers and financial institutions down a real road to ruin, it is important to discuss paternalistic policies that may mitigate them. Findings – The authors point to evidence and argue that Unrealistic Optimism may well have been at play in the recent behaviour of mortgage and corporate credit markets in Portugal and Spain. Analyses of some relevant variables of the mortgage and corporate credit markets in Portugal and Spain. Design/methodology/approach – Critical review of existing literature on Unrealistic Optimism. The authors propose conservative paternalistic measures. Although the policy and welfare implications of such a widespread phenomenon are vast, they have been largely neglected by policy makers. The purpose of this paper is to discuss the meaning of being “unrealistically optimistic”. Purpose – Unrealistic optimism is a well‐documented psychological phenomenon. Unrealistic optimism: what it is and how to deal with it Unrealistic optimism: what it is and how to deal with it
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