UX is all about human psychology.  Here are some key truths.

1. People are dillusional optimists.  Whether it’s estimating how much work something will take, stock market speculation, gambling, or any other predictive test, people will always exaggerate their chances of success.  It’s hard-wired into most of us.  How many times have you said, “Just a minute!”
2. People believe in Newton’s first law.  “An object at rest tends to stay at rest and an object in motion tends to stay in motion with the same speed and in the same direction unless acted upon by an unbalanced force.”  In other words, “A stock/house price that is going up will continue to go up.”
3. Cognitive Dissonance is the most powerful force in human psychology.  Put simply, People never think they are wrong.  People will bend over backwards to make the facts fit their opinions.  There was this great book about a cult in the 50’s that predicted the end of the world.  When that didn’t happen, they just changed the facts to make them NOT-WRONG.  (People are desperate to be NOT-WRONG, and not evil and not mean.)
4. People will defer pain no matter what the costs.  It is extremely rare that people want to “take the hit now” or “bite the bullet” or “invest in the future”.  People would rather borrow today and pretend that all will be better in the future.

Let’s examine how these facts combine to create a perfect storm of crap in our economy.

The Great Depression
There were alot of exciting things happening in technology at the turn of the century.  Cars, electricity, engineering marvels all were popping up.  We had reason to be optimistic.  The stock market started to soar.  Use the facts above and you can safely say, “People thought that the future was bright and stocks would continue to go up. Then people avoided the warning signs and refused to take the hit, until the crash.”  

KEY FACTOR:  People were allowed to borrow 90% of their assets (even virtual assets)  to re-invest in the stock market.  This was called trading on margin.  After the crash, this % was lowered dramatically.  People borrowed tons of money to invest in the stock market even though the prediction of future success would fail.  When the stocks crashed, peopel jumped out of windows because they were bankrupt.  They would lose everything because of the borrowed debt.

The Dot.com Bubble
Same issue.  Stocks were purchased even though no business model was there.  People were too optimistic.   They all crashed and we had several years of a down economy.

KEY FACTOR:  The % of margin trading was lower than the great depression.  We weren’t leveraged BEYOND our capabilities.  We just lost everything, but we didn’t jump out of building windows.

The Housing Bubble (Now)
Housing prices were going up, up, up and people assumed that it would continue.  

KEY FACTOR:  People were allowed to put ZERO MONEY down to buy these houses.  This wasn’t like the dot.com bubble, it was like the great depression with margin trades.  This factor combined with human psychology means that people WOULD buy leveraged to the hilt, they would assume the prices would continue up and that all would be well.  When the Adjustable Rate Mortgages “adjusted” then peopel said, “ooops, I guess I can’t pay this mortgage”.  OK, now we have a serious issue.  The banks are stuck with “toxic mortgages”.  The size of this problem is the same as the great depression.

Looking at Human Psychology is a great way to make public policy.  The reason I like the progressives is because I beleive in regulation.  Regulation against the UX facts I stated.  Of course, it is possible to have terrible regulations, it is more possible to have NO regulation which allows people, with all of their stupid hard-wired psychology to make a mess of everything.

I would rather have some bad regulations than leave the world to our messed up psychology.  Maybe, this is a strange way of putting it, but this is how I think.