If economics boils down to Supply and Demand, what's the equivalent fundamental principle of psychology?

Economics has an elegant fundamental law: Supply and Demand. At first glance, it's simple—more supply than demand lowers prices, while more demand than supply drives prices up. But dig deeper, and this simple relationship unlocks a profound understanding of complex economic phenomena. It explains why diamonds are more expensive than water (even though water is essential for life), why housing markets crash, and why monopolies wield enormous power. Whether it's deciding the price of your morning coffee or shaping international trade policies, supply and demand is the quiet force behind it all.

Could psychology have something equally foundational, an underlying principle that neatly explains our complex behaviors and emotional reactions? I was thinking about this the other day, and here's what I thought. Note: this journal is meant for all levels of readers, so it's written in a more entertaining / less professional way. Feel free to talk to me if you have a different perspective. After all, psychology is as much about dialogue as it is about discovery.

Start thinking

Imagine you've booked tickets to see a new movie everyone is excited about. Friends are raving about how thrilling and groundbreaking it is, and social media buzz is through the roof. Naturally, your expectations are high. You grab popcorn, settle into your seat, and wait for the movie. After watching it, you leave the theater feeling slightly underwhelmed — the CGI didn't impress you, and the plot felt predictable.

Yet, when friends later ask about your experience, you find yourself focusing more positively on aspects that others praised, even slightly downplaying your own reservations. It's completely normal. Your cognition towards the movie isn't merely about what you saw. Your reaction comes from a combination of your high expectations beforehand, the actual experience of watching the movie, and how you interpret the difference between what you anticipated and what you saw on the screen.

This is known as the Expectancy Violation Theory and Cognitive Appraisal Theory. One explains how people respond when their experiences differ from expectations and the other describes how our emotions and behaviors are shaped by the way we interpret or appraise events relative to our expectations.

Through this scenario, we've uncovered psychology’s fundamental principle:

“Human behavior is shaped not by outcomes alone, but by what those outcomes mean to people personally, based on their expectations and interpretations.”

Linking to famous theories

This powerful idea, nuanced yet practical, helps unravel many of psychology's famous theories. Consider the intriguing phenomenon known as Misattribution of Arousal. Imagine you are crossing a precariously swaying bridge high above a canyon. Your heart pounds, your breathing quickens—symptoms of fear and adrenaline. But once safely across, you meet someone attractive. Surprisingly, your brain might reinterpret your physical reactions (accelerated heartbeat and nervous excitement) not as fear from the bridge but as romantic attraction toward this stranger. This misinterpretation happens precisely because your mind attempts to reconcile reality (strong physiological arousal) with expectations of attraction upon meeting someone intriguing.

Similarly, consider the compelling idea of Cognitive Dissonance. Imagine you're usually honest, but one day, circumstances push you into doing something dishonest. Immediately, you feel discomfort because your behavior doesn't match your expectation of yourself as honest. To resolve this discomfort, you reinterpret your action—perhaps convincing yourself that the dishonesty was justified or that anyone else would have done the same. This reinterpretation maintains your internal consistency and alleviates psychological discomfort.

The Placebo Effect follows the same principle. Why do sugar pills sometimes cure real pain? Because when you expect relief from pain, your interpretation of the experience aligns with that expectation. Your mind assigns genuine healing meaning to the otherwise inert pill, influencing your physical response and recovery.

Even complex phenomena like Learned Helplessness fit neatly into this principle. After repeated failure, a person begins interpreting outcomes negatively—believing, "I have no control." Eventually, even when opportunities for success return, they don't seize them because their interpretation of past experiences has deeply altered their future expectations.

You can use this

This fundamental psychological principle isn't just theoretical; it's profoundly practical:

• If you're seeking to motivate yourself or others, think about reshaping expectations or reframing interpretations.
• When puzzled by someone's behavior, analyze the interplay between their expectations, the actual outcomes, and their interpretations.

In the book Atmoic Habits, the author suggests that if you're trying to stop smoking, you shouldn't say, "I'm trying to quit smoking," but rather affirm your identity by saying, "I'm not a smoker." This not only affirms your identity as a non-smoker, but also sets your expectation that you won’t smoke.

Just as the elegant principle of Supply and Demand clarifies the complexities of economics, our psychological principle elegantly explains the complexities of human thought, emotion, and behavior. So the next time human behavior seems baffling—whether in others or yourself—remember to ask these three vital questions: What was expected? What actually occurred? And crucially, how was it interpreted?

Because in psychology, as in economics, understanding foundational principles helps us navigate the beautiful complexities of our everyday lives.

A Note on Limitations and Alternative Views

Of course, psychology is a vast field with multiple perspectives. Behaviorists might argue that external rewards and punishments are the key drivers of behavior, while neuroscientists could stress brain chemistry and circuitry as the fundamental forces. Even within social and cognitive psychology, there are those who prefer different frameworks altogether. No single principle — expectation and interpretation included, can capture every facet of human behavior. Rather than claiming to be the ultimate law of psychology, think of it as a powerful lens. It helps us see how our personal meanings and anticipations shape our reality, even though there are many other lenses we can use to understand the depth and breadth of the mind.