What is the focus of behavioral finance?

Behavioral finance primarily concentrates on understanding the psychological factors that influence investors' financial decisions. It investigates how emotions, biases, and cognitive errors affect the behavior of investors and market trends. This field seeks to explain why markets might not always be efficient, highlighting the ways that human psychology can lead to irrational behavior in financial decision-making.

By examining these psychological influences, behavioral finance provides insights into why investors might deviate from traditional financial theories, such as those assuming that all investors act rationally. This understanding can lead to better predictions of market movements and improvements in investment strategies, allowing financial advisors to help clients make better-informed decisions by recognizing their own behavioral biases.

The other options do not encapsulate the core of behavioral finance. While mathematical models and historical performance analysis play significant roles in finance, they do not address the behavioral elements that drive investor actions. Similarly, automated trading systems focus on technological advancements in trading rather than the psychological factors at play in investor behavior.