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

Question

Quizplus · Accepted Answer

The lenders and borrowers displayed overconfidence bias by underestimating the risk associated with lending and borrowing such large amounts of money without properly assessing the ability to repay. This led to the purchase of bad debts and ultimately contributed to the financial meltdown of 2008. Hindsight bias, availability bias, confirmation bias, and anchoring bias are not applicable to this scenario.

One of the Core Problems That Created the Financial Meltdown