Behavioral Bias in Portfolio Construction

In behavioral finance, the concept of behavioral portfolio theory suggests that investors build portfolios based on psychological factors, rather than traditional utility maximization assumptions. A group of financial advisors has been discussing how certain biases affect the portfolio construction process for their clients.

One advisor believes that clients tend to overweigh low-probability, high-impact outcomes, such as stock market crashes, leading them to hold excessive cash reserves. Another advisor argues that clients often exhibit a preference for loss aversion, causing them to avoid asset classes that have experienced losses, even if the fundamentals suggest recovery potential.

Given these insights, which of the following statements best captures a potential behavioral bias that could arise from clients' portfolio construction decisions?