Why Do You Like What You Like?
If you are thinking about buying a car, your choices can be overwhelming: Should you buy or lease?
New car or used? A sport utility vehicle, a sedan, a sports car, or a minivan? Should you get a sun-
roof or four-wheel drive? How much extra would you pay for a vehicle that will have a high resale
value in the future? What are the expected operating expenses for each model—insurance, repairs,
gasoline, and so on? Finally, what opportunities will you forgo if you buy a car? How else could you
spend your money, either today or in the future?
Making decisions about a product with many options is not easy. Before buying a car, for exam-
ple, you might draw on the experiences of friends and family, read advertisements, visit dealers, and
test-drive vehicles. You might also research different models and financing options on the Web,
, price insurance rates for favorite models, or even visit chat rooms
frequented by car buffs.
As a consumer, you make choices every day of your life. Besides choosing among automobiles,
you must decide what kind of housing to rent or purchase, what food and clothing to buy, how
much education to acquire, and so on. Consumer choice provides an excellent example of
constrained optimization, one of the key tools discussed in Chapter 1. People have unlimited
desires, but limited resources. The theory of consumer choice focuses on how consumers with
limited resources choose goods and services.
Inﬂuencing Your Preferences
How People Buy Cars:
The Importance of Attributes
Hula Hoops and Pet Rocks
Does More Make You
Happier? Reference-Dependent Preferences
PREFERENCES AND THE
CONCEPT OF UTILITY