What does behavioral finance analyze?

Behavioral finance focuses on the psychological influences that impact investor behavior and decision-making processes. It explores how cognitive biases, emotions, and social factors affect the way investors perceive market risk, make decisions, and ultimately, the consequences of those decisions on market outcomes.

The field combines insights from psychology and finance to explain why individuals often act irrationally in the face of market conditions, leading to anomalies that traditional financial theories, which assume rational behavior, fail to capture. For instance, phenomena such as herd behavior, loss aversion, and overconfidence are central topics within behavioral finance, shedding light on how these factors can lead to market inefficiencies and deviations from expected rational responses.

The other options, while relevant to finance as a whole, do not encapsulate the core premise of behavioral finance. Historical performance analysis, regulation, and mathematical market models pertain to different aspects of financial analysis and investment strategy, rather than the psychological components that behavioral finance uniquely addresses.