Behavioral Finance in Wealth Management: Regret Aversion

A private wealth management firm is analyzing the investment behavior of a high-net-worth client, Mr. Johnson. Mr. Johnson has a history of making impulsive investments but displays significant regret over past trading decisions, especially during market downturns. His wealth manager has indicated that Mr. Johnson often tends to disregard sound financial advice when emotionally charged, especially after recent market volatility.

The wealth manager is considering implementing a new investment strategy that accounts for Mr. Johnson's behavioral tendencies. The strategy aims to mitigate the impact of behavioral biases such as regret aversion and overconfidence by using systematic rebalancing and diversification techniques.

Given this scenario, which of the following behavioral finance concepts is primarily driving Mr. Johnson’s investment decision-making process and needs to be addressed in the management of his portfolio?