What is behavioral finance concerned with?

Behavioral finance is primarily focused on understanding how psychological influences and cognitive biases affect the financial behaviors and decisions of investors. It explores the idea that investors are not always rational and that their behaviors can be influenced by emotions, social interactions, and mental shortcuts. This field examines phenomena such as overconfidence, loss aversion, and herd behavior, providing insights into the systematic ways in which these psychological factors can lead to market anomalies and deviations from traditional financial theories.

In contrast, the other options address different aspects of finance. For instance, analyzing financial statements pertains to fundamental analysis, which is a distinct area focused more on the quantitative evaluation of a company's financial health rather than the psychological factors influencing investors. The prediction of market trends through mathematical models relates to quantitative finance, which relies heavily on statistical techniques rather than behavioral insights. Methods to measure market liquidity focus on the ease of transaction in markets, which is a more technical and structural aspect of finance, separate from psychological influences. Thus, option B stands out as it directly encompasses the essence of behavioral finance.