Question

What is utility and why is it so important in the study of consumer choice? Do you think you make your decisions as a consumer in a way that maximizes your utility, subject to your budget constraint?

Answer 1

Utility is basically the power that is able to provide satisfaction towards incoming desires and wants. The level of satisfaction a consumer receives from consuming a commodity she ends up buying in exchange for its price, is a measure of such utility. Rational choice theory assumes that consumers will always use the all the available information and selects the bundle of consumer goods that is the best (from the view of satisfaction level) given the affordability allowed by the budget.

In practice, this does not happen because there are methods that can force / encourage consumers to go beyond rational selection based on equimarginal principle and go for irrational decision making. Some bias such as Confirmation bias, Hindsight bias, substitution bias etc.