ABSTRACT
The "psychological" theories introduce certain assumptions about typical reactions, mainly on the part of the entrepreneur and the saver, in certain situations; and these reactions are conventionally called psychological, because of their (in a sense) indeterminate character. Naturally, economic actions and reactions in such cases are less rigidly determined by observable facts than in other cases. It is therefore mainly here that the "psychological" theories make their essential contribution. Optimism and pessimism are introduced as additional determinants. Another point to which the psychological theories direct attention is the fact that, when demand and prices have continued for a while to rise, people get into a habit of expecting more and more confidently a further rise of equal or approximately equal extent. The theorists who stress the psychological factor, especially Professor Pigou and Mr. Keynes, point out, furthermore, that the discovery of errors of optimism gives birth to the opposite error of pessimism.
