Which of the following describes key tenets of behavioral finance?

The correct choice recognizes that behavioral finance is fundamentally grounded in psychological principles. This field integrates insights from psychology with finance, identifying how cognitive biases and emotional factors can influence investors' behaviors and decision-making processes. Behavioral finance seeks to understand why individuals often act irrationally in financial markets, diverging from traditional economic theories which assume that investors are fully rational and markets are efficient.

This grounding in psychology allows for a deeper analysis of financial phenomena, such as market anomalies and bubbles, which cannot be adequately explained by traditional finance theories. By examining how emotions, cognitive biases (like overconfidence or loss aversion), and social factors affect investor behavior, behavioral finance provides a more comprehensive framework for understanding market movements and the decision-making process.

In contrast, the other options represent concepts that do not align with the principles of behavioral finance, as they focus either on a purely statistical or efficient-market perspective, or they dismiss the significant role of emotions in financial decisions.