Your Delusion Tax: What Optimism Bias Actually Costs
How much does your optimism actually cost your business? Below, I will explain and provide a free tool for you to test it yourself.
I remember the first time a VC asked me: “What’s your probability of failure?” I did the polite founder thing. I chose a number that sounded responsible without being alarming and said, “Five percent.”
He laughed. Not mean. Just… experienced.
I've seen this exact pattern in 30 years of turnarounds.
Optimism bias doesn't feel like bias. It feels like confidence, but what is the difference? It is actually quite simple: Confidence updates with evidence. Delusion doesn't.
Here's how to tell which one you have.
The Research:
Cooper, Woo & Dunkelberg studied founders and found that 81% rated their odds of success higher than those of comparable businesses. 33% estimated their probability of failure at literally zero.
Even when founders knew the base rates (most startups fail), they believed: "Yes, but not MY startup."
Overconfidence persists even when you show people the actual statistics.
The pattern shows up everywhere:
You think your runway is 8 months. It's actually 5
You assume customers pay on time, but they rarely do.
You project 30% growth. Reality delivers 12%.
The gap between belief and reality? That's the delusion tax.
And it shows up as: decisions delayed, capital wasted, teams waiting, and boards firefighting instead of governing.
The Mechanism:
Optimism bias is expensive because it clouds and delays the hard decisions.
If you believe you have 8 months of runway, you wait. If you believe the deal will close, you wait. If you believe the customer will pay, you wait.
The more you need it, the more blind and optimistic the brain works. But then reality arrives, and your options have narrowed.
The sentence I hear most: "We thought we had more time," but you almost never do. I have heard this in startups and in established SMEs across industries and experience levels. That is why I built the free Optimism Audit tool, a sanity helper to uncloud and unbias your decisions.
The free tool to test your optimism
It's a 2-minute psychological calibration test.
You enter 6 financial data points: → Expected runway → Growth projections → Payment timing assumptions → Fundraising probability → Customer conversion rates → Decision timeline confidence
The tool calculates your "delusion score": the gap between what you believe and what's statistically likely.
The gap between your optimism and reality
The Categories:
0-15%: Well-Calibrated You're seeing reality accurately. Rare for founders. Keep this.
16-30%: Moderately Optimistic Mild overconfidence. Common and manageable. Watch your runway assumptions.
31-50%: Dangerously Deluded Your expectations are significantly disconnected from base rates. This is where cash crises start.
51%+: Critical Delusion You are not seeing reality. Your board should be concerned. Act now.
The test doesn't tell you what to do. It tells you if you're seeing clearly.
Why This Matters
Optimism is a human trait for most. For founders, it's why we started in the first place.
For CEOs and Boards, uncalibrated optimism is the most expensive bias you can carry.
It shows up as:
Runway miscalculations
Missed decision windows
Capital burned on hope instead of evidence
The Optimism Audit gives you a number.
If you score below 15%, you're calibrated. Trust your judgment. If you score above 30%, adjust your timeline.
What’s next
Test your calibration: optimismaudit.earlywarningindex.com 2 minutes. Free. Uncomfortable. Necessary.
If your score is above 30%, the Early Warning Index shows which execution risks are compounding the delusion—and what to fix first. Free assessment: app.earlywarningindex.com