A lot is currently being written about H.C.'s memory / lies / stories. Here are a couple more interesting and charitable blogs from a cognitive perspective :
I think that there maybe other explanations here, and one in particular that I have researched with leaders, particularly when they are reporting on how they see certain situations like the reality of the market conditions for example.
The phenomenon, 'context recollection' incorporates the affect of the emotions on story telling and recounting of memory events. If there is a strong emotional situational context, in which the story is being retold, particularly those contexts that produce euphoria or fear (risk and ambiguity) there is a strong tendency for the story or memory recollection to be molded to the current context to either carry on the euphoric emotions or to mitigate perceived threats.
The tellers of these untruths know and can report that the memory is not real, however the context appears to change the meaning of the untruth to 'not a lie' for the story teller.
Without evidence to the contrary, many leaders will stick to the 'untruth' and force agreement, creating a false certainty, ignoring and filtering out evidence that everyone else knows the veracity of the situation. Denial of this type is typical mode one behaviour.
This has a lot of consequences in situations where leaders are making decisions based on their understanding of the current situation and perceptions of the past. If they make decisions at times of euphoria or fear (even if they are not conscious of the emotion at the time) the decisions are usually awful ones. Their recollection of the success of the decision is likewise altered by the emotions experienced. This is why I place such emphasis on the development of emotional resilience and intelligence for leaders.