One of the Core Problems That Created the Financial Meltdown

question 22

Multiple Choice

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

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Definitions:

Nondiscriminating Monopolist

A monopolist that charges all consumers the same price for its product, as opposed to engaging in price discrimination.

Profit-Maximizing

A strategy or process businesses use to achieve the highest possible profit from their operations.

Total Profit

The total income of a business after subtracting all expenses from the total revenue obtained from sales and other sources.

Profit-Maximizing

Profit-maximizing is the process by which a firm determines the price and output level that returns the greatest profit.