As a financial advisor, you encounter clients who exhibit various behavioral biases when making investment decisions. One common type of cognitive error is overconfidence, which can lead investors to overestimate their knowledge and underestimate risks.
Consider the following scenario: You have a client, John, who believes that he has superior insight into the stock market due to his recent successful stock picks. Despite your advice to diversify his portfolio, he insists on investing heavily in a few individual stocks that he believes will perform exceptionally well.
In your essay, discuss the implications of cognitive errors like overconfidence in John's investment strategy. What tools or strategies could you employ to address these cognitive biases, ensuring a more balanced and diversified investment approach for John?