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 biasB) availability biasC) overconfidence biasD) confirmation biasE) anchoring bias

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

Explanation:

In psychology, confirmation bias is a cognitive process by which individuals tend to favor input to confirm certain beliefs or biases they already had. The term is associated with behavioral finance at the moment of determining subjective and poor decision making.

Usually, this happens when investors are too optimistic over certain instruments, so, they look for information that can ensure their position over the instrument is correct and dismiss all input that could state the opposite, even if it is true.

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