When an investor buys a technology stock during a bull market despite high valuations, what psychological behavior is being demonstrated?

The correct identification of this psychological behavior as rationalization shows how investors often justify their decisions even when faced with evidence that may suggest caution—such as high valuations for a technology stock in a bull market. Rationalization occurs when an investor downplays risks and justifies purchasing a seemingly overvalued asset, convincing themselves that the price will continue to rise, despite the indicators suggesting otherwise.

During a bull market, there's often euphoria and the belief that prices will keep climbing, leading investors to dismiss the inherent risks. This behavior reflects a tendency to create excuses or reasons to support their decisions, particularly when their previous convictions are challenged by market realities.

Other psychological biases, while relevant in investing contexts, do not directly capture this behavior as accurately. For example, overconfidence pertains to an investor's undue belief in their ability to predict market movements or their own savvy, rather than merely justifying a decision. Anchoring involves relying heavily on the first piece of information encountered, which isn't the primary behavior demonstrated in this scenario. Confirmation bias occurs when individuals favor information that confirms their existing beliefs; though it might play a subsidiary role, the stronger emphasis in this case is on the active justification of the action taken—hence, rationalization is the more apt