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 who how poor the prospects of repayment were. Which of the following decision making error 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

C) When we are given factual questions and asked to judge the probability that our answers are correct, we tend to be far too optimistic. During the financial meltdown of 2008, the lenders and borrowers were overconfident about the ability to pay back loans. This overconfidence bias was clearly a major factor that created the financial crisis.

One of the Core Problems That Created the Financial Meltdown