Hindsight bias in predictions of the 2008 Financial Crisis
LE3 .A278 2019
Bachelor of Business Administration
The 2008 Financial Crisis led to one of the worst recessions in United States history. Select individuals such as Dean Baker, Robert Shiller, Michael Burry and more, published predictions of this financial crisis prior to it beginning, yet none of the predictions were taken seriously at the time. An irrationality within the field of Behavioural Finance by the name of hindsight bias, suggests that the likelihood of an event becomes more apparent after the event is underway. The null hypothesis used in this paper is that predictions published by a sample of individuals who correctly predicted the 2008 Financial Crisis were contaminated with hindsight bias, discrediting their validity. Analyzing each prediction against the facets that make up hindsight bias is used to determine any existence of the bias. Once a level of credibility has been established, the current 2018/2019 commentary of the same sample will be considered in an attempt to discover future market implications. The results of the analysis show that in fact no hindsight bias was present in any of the predictions made by the sample. The validity of all six predictions of the 2008 Financial Crisis indicates that current commentary regarding the economy should be taken seriously. This paper presents opportunities for future study between Hindsight Bias and the 2008 Financial Crisis; such as an extension of the current study with a larger sample size to explore hindsight bias within other predictions of the 2008 Financial Crisis.
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