For three out of the four biases I discuss in my book, it's easy to see the connection between economic biases and inefficient policies. Anti-market bias leads to under-use of markets. Anti-foreign bias leads to excessive protection, immigration restrictions, etc. Make-work bias props up labor market regulation.
But the last of the four biases - pessimistic bias - is tricky. If the world is going to hell in a handbasket, what's the policy implication? Maybe you should launch a big crusade to save the world... but maybe you should just give up because the situation is beyond remedy.
So what exactly are the policy implications of pessimism? Will Wilkinson proposes an answer at Overcoming Bias:
Nothing beats a "crisis" to rally support for a big government effort. Right statists constantly drum up moral panics about sex and drugs. Also, Mexicans are "invading" and terrorists will surely blow us all up while singing the Star Spangled Banner at baseball games if we don't allow the executive Jack Bauer to torture military detainees whenever he wants. Similarly, left statists warn that the shores of Manhattan will be inundated by rising oceans and very cute baby polar bears will die in droves. Also, inequality is soaring, threatening the foundations of democracy. And the middle class lives in terrifying "economic insecurity."...
By comparison to people on both the left and the right who would like the government to do something, libertarians can seem either ostrich-like, pollyanna-ish, or both. I suspect the "everything is going to be OK so the government can just stay out of it" bias played a key role in motivating many conservatives and libertarians to be favorably disposed toward skeptical findings about global warming. Let's call this "libertarian optimism bias." But I also suspect that the "OMG! there is a huge crisis so the government has to do something NOW" bias is at play at least as strongly in a number of important issues. Let's call this "statist pessimism bias."
I broadly agree with Will, but he neglects some big counter-examples. The biggest: Pessimistic bias helped kill the Soviet Union. By Soviet standards, life in the 1980's was great. (Remember Stalin?) But the Soviet people became convinced that things were so bad they couldn't continue. The result: Year after year of radical reforms that ended with the implosion of Communism.
The lesson, I suspect, is that pessimistic bias undermines whatever people perceive as the status quo. In the U.S., people (bizarrely) perceive laissez-faire to be the status quo, so pessimism helps government grow. But in places where government is the status quo, pessimism can and often does push in the opposite direction.