Behavioral Portfolio Theory and Client Investment Strategies

John is a financial advisor counseling a group of clients who tend to have strong emotional reactions to market volatility. He has noticed that they often make impulsive decisions, such as selling their investments during market downturns. To better serve his clients, John is interested in understanding how Behavioral Portfolio Theory can help him devise a more effective investment strategy that aligns with his clients’ behavioral tendencies.

Discuss how Behavioral Portfolio Theory applies to John's situation. Include in your response an explanation of the key principles of Behavioral Portfolio Theory, how it contrasts with traditional portfolio theory, and specific strategies that John might use to mitigate his clients' bias against loss and encourage a more disciplined investment approach.