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Five- to 10-year-olds (= 90) listened to 6 illustrated scenarios featuring 2 characters that jointly experience the same positive event (and feel good), negative event (and feel bad), or ambiguous event (and feel okay). Afterward, one character thinks a positive thought and the other thinks a negative thought. Children predicted and explained each character’s emotions. Results showed significant development between 5 and 10 years in children’s understanding that thinking positively improves emotions and thinking negatively makes one feel worse, with earliest knowledge demonstrated when reasoning about ambiguous and positive events. Individual differences in child and parental optimism and hope predicted children’s knowledge about thought–emotion connections on some measures, including their beliefs about the emotional benefits of thinking positively in negative situations.