For example, if an individual runs a shop in his local community whilst the economy of his country is in recession, that individual may not deem his market as being affected by the weak economy and may in fact view his business as booming and thus spend more in expanding his business.
In the neoclassical theory of economics, individual consumer behavior will not have any effect on the aggregate demand.
[7] In the Keynesian theory of economics, it is argued that both public and individual behavior will have an effect on aggregate demand due to expenditure.
Henceforth, consolidating individuals behavior will limit the complications that may arise, allowing the formatting of a more accurate model.
In market equilibrium of no net profits, individuals are constrained maximisers of their objective functions.
Psychology would therefore attempt to explain short-run, disequilibrium behavior in a manner which would be consistent with the no net profit market equilibrium.
This thus deems Keynes' characterisation of capitalist economies being prone to financial instability, unemployment, irrational waste of resource and others.