Confabulation is a condition where memory does not work properly and the patient makes statement that, while generally plausible and honestly held, are demonstrably untrue. The patient will generally be very confident about their recollections, even in the face of contrary information.  

The two conditions most likely to result in confabulation are amnesia and dementia, and are a defining symptom of Korsakoff's syndrome.  

Confabulation at Wikipedia

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