Great writers utilize psychology. Since psychology involves the analysis of individual behavior, to create fully realized characters a writer must also fully realize their characters' psyches. At the same time, every character must find a suitable place in the midst of society, which of necessity means interaction, interplay, and a realization of all that a broader environment means. Individualism and individual rights are so important to us that often we seek psychological explanations for all behavior. We must remember though that personal psyches exist in the entire context of being, not just within the individual mind.
We can't afford to give psychological explanations for personality differences and other types of motivations without considering the entire setting and context of our characters. To do so would leave our work incomplete.
Our characters always find themselves in a culture, somewhere in place and time. But culture is not pure. It is always tainted. And we must recognize it. We must see a complex configuration. A configuration that includes economics and politics and social institutions in their entire array.