Depressive realism

Depressive realism is the proposition that people with depression have a more accurate view of reality. This proposition is contested.

Studies
Some studies have shown that depressed people appear to have a more realistic perception of their importance, reputation, locus of control, and abilities (Alloy and Abramson, 1979; Dobson and Franche, 1989).

People without depression are more likely to have inflated self-images and look at the world through rose-colored glasses, thanks to cognitive dissonance and a variety of other defense mechanisms.

This does not necessarily imply that a happy person is delusional. Also, depressed individuals can be unrealistically negative (e.g. Pacini, Muir and Epstein, 1998).

Arguments
Since there is evidence that positive illusions are more common in normally mentally healthy individuals than in depressed individuals, Taylor and Brown (1988) argue that they are adaptive.

However, Pacini, Muir and Epstein (1998) have shown that the depressive realism effect may be because depressed people overcompensate for a tendency toward maladaptive intuitive processing by exercising excessive rational control in trivial situations, and note that the difference with non-depressed people disappears in more consequential circumstances.

Knee and Zuckerman (1998) have challenged the definition of mental health used by Taylor and Brown and argue that lack of illusions is associated with a non-defensive personality oriented towards growth and learning and with low ego involvement in outcomes. They present evidence that self-determined individuals are less prone to these illusions.