Schematic of Possible Mood Dysfunctions. (A) (Top) Given a similar rate of learning in response to positive and negative outcomes, an environment in which positive and negative outcomes are equally likely leads to neutral expectations and a neutral mood on average. (Bottom) A lower rate of learning from negative outcomes leads to optimistic expectations and therefore larger negative prediction errors and persistent negative mood, a symptom seen in major depressive disorder. (B) Escalatory positive-feedback dynamics might turn mood into a ‘self-fulfilling prophecy’, leading to emotional instability, a major symptom of bipolar disorder. Positive surprises improve mood, biasing perception of outcomes upwards, thereby increasing the frequency and magnitude of further positive surprises. Optimistic expectations develop owing to the biased perception of outcomes. Mood stabilizes once expectations catch up with perceived outcomes, but subsequent outcomes, whose perception in now unbiased, then tend to fall short of optimistic expectations. Thus, negative surprises follow, thereby diminishing mood and biasing perception of outcomes downward. Similar positive-feedback dynamics then engender pessimistic expectations, setting the stage for the cycle to repeat, oscillating between good and bad mood indefinitely even if there are no changes in the actual distribution of outcomes.