Question

One of the core problems that created the financial meltdown of 2008 was that large loans were made to individuals who could not repay them, and the finance companies purchased these bad debts without realizing how poor the prospects of repayment were. Which of the following decision-making errors was made by the lenders and borrowers?

A) hindsight bias
B) availability bias
C) overconfidence bias
D) confirmation bias
E) anchoring bias

Answer 1

The correct answer is letter "D": confirmation bias.

Step-by-step explanation:

Confirmation bias is a cognitive process in which individuals tend to favor input to confirm certain beliefs or biases they already had. The term relates to behavioral finance at the time of recognizing subjective and poor decision-making.

This happens when investors are too optimistic about certain instruments, so they look for information that can ensure that their position on the instrument is correct and dismiss any input that might indicate the opposite, even if it is true.

Answer 2

d. confirmation bias

Step-by-step explanation:

Confirmation bias -

It is a type of cognitive bias , where some prior data or information is used to confirm some belief or information , is referred to as confirmation bias .

In simple words ,

It is a type of information which helps to confirm some recent thoughts or beliefs .

Hence , from the given scenario of the question ,

The correct answer is d. confirmation bias .