Unlike the sellers, they didn't know much about the quality of the vehicle. Traditional economic theory assumes that both parties enter into the transaction with equal knowledge, and that as a result the agreed upon price is fair. Behaviorism since then has been used to explain such habits as reckless spending and altruism. Standard economic theory holds that wages are lowered in times when jobs are plentiful. But employers don't do that because it's in their best interest to retain good employees by keeping salaries where they are, or raising them a bit.
Marketing also relies heavily on psychology to create demand for new products.
Ads for Apple's colorful iMac computers, for example, are targeted at a different class of consumers than those inclined toward standard beige desktop machines. Increasing demand is significant not only for a company's survival, but also for the health of the overall economy. It means increased productivity and more jobs, Eldridge said. For the economy at large, the psychological forces at work in the nation's two primary investment markets, the New York Stock Exchange and the Nasdaq Stock Market are getting a lot of attention lately. Shiller likens the situation to a poker game in which every player is trying to anticipate the others' next moves.