If funds managers were realistic about their chance of adding value they might set up ‘Cynical Investment Management’, one former funds manager says, and just play the game to exploit the most fees out of clients. “Do you make money using the optimal strategy to maximise the returns for your clients?” he asks. “Probably not. The only time you need to have good performance is when you haven’t got any clients, and you want to get them.” All is not lost The view that optimism is good because it encourages low-skill investors to donate themselves as cannon fodder may be a cynical – or even pessimistic – view of the world. But the reality is that in every field of endeavour, the number of people who try will generally exceed the number that can possibly succeed. So why do all these losers keep playing? Tom Crvenkovic, a coaching psychologist, says that often the salience of the reward can outweigh the fact that the probability of it happening is infinitesimally small, and be sufficient motivation for people to pursue it anyway.

It depends on the person’s values, he says. For example, for someone who dreams of being rich, the salience of wealth may be more important than the possibility that a life without wealth might be squandered trying to achieve it. Or regarding a lottery ticket, the size of the prize and excitement of the possibility might make it worth the relatively small cost of the ticket and near zero probability of success for some people. Lotteries, it has been said, are a tax on people who can’t do mathematics. Also, if the likelihood of something occurring is rare we tend to attach more value to it. Thus things can be deemed worth pursuing simply because they are unlikely to happen, and enjoyed only by a few – such as winning gold at the Olympics. And sometimes people do defy the odds – even if it doesn’t happen as often as the swathe of rags-to-riches/ sporting hero’s stories and motivational literature might have us believe.

Producing a picture of pimply Bill Gates surrounded by a group of bushy haired hippies in 1978, Jack Gray says: “Do you think anyone but a pure optimist would have backed this kid when he said his aim was to have a personal computer in every home?” If everyone is realistic about the chance of success for a particular course of action, chances are no-one would ever do anything. Realism is not always the best alternative to optimism. “People can become so concerned trying to account for every unforeseeable difficulty that they suffer paralysis by analysis,” Crvenkovic says. According to Terrance Odean, professor of Banking and Finance at the Haas School of Business, moderately overconfident fund managers make decisions that are in the better interest of well-diversified shareholders than do rational managers, because they will be more comfortable taking on risk.