Behavioral Biases in Wealth Management: Overconfidence and Loss Aversion

As a wealth manager for high-net-worth individuals, you have observed various behavioral biases that influence your clients' investment decisions and financial planning. One of your clients, Mr. Thompson, demonstrates signs of overconfidence, leading him to frequently make heavy investments in technology stocks without sufficient diversification. Another client, Mrs. Huang, is influenced by loss aversion and tends to hold onto losing investments, hoping they will recover, while avoiding new opportunities that could yield positive returns.

Discuss how these behavioral biases—overconfidence and loss aversion—can affect the financial decision-making processes of Mr. Thompson and Mrs. Huang. Additionally, provide strategies you would recommend to help each client mitigate the impact of these biases on their portfolios. Your response should integrate concepts from behavioral finance, illustrating the potential consequences these biases can have on overall portfolio management and wealth planning.