How real worlds makes choice

How Real World’s Consumer Makes Choice?
Hay Nong (Asia Economics Theory Research Center; Tsinghua University）

Traditional economics assumes commodity is homogeneous, but in real world’s
market, commodity is often heterogeneous in the objective characteristic or attribute,
such as house is often heterogeneous in size, computer is often heterogeneous in CPU
speed.
We discovered, in real world’s market, since commodity is often heterogeneous in
attribute, then, consumer will make the choice in a two steps two approaches’ way.
Suppose in the market, there are 40 brands of bread and 30 brands of clothing. At the first
step, consumer will make a choice by attribute, choosing the best bread by nutrition, and
choosing the best clothing by warmth keep ratio. At the second step, consumer will make
a choice by utility, choosing a bundle of the best bread and the best clothing that has the
largest utility. We strictly proved this way of choice is rational for consumer.

1 Introduction
Traditional economics often assumes commodity is homogeneous, and argues
consumer will choose a bundle of commodities that has the largest utility under budget
constraint (Samuelson et. al. 2005; Varian 2014, Mankiw 2016).
But in real world’s market, commodity is often heterogeneous in the objective
characteristic or attribute. Such as, in real world’s house market, house is often
heterogeneous in size, in real world’s computer market, computer is often
heterogeneous in CPU speed. Then, to understand real world’s consumer choice
behavior, we need analyze how consumer makes choice when commodity is
heterogeneous in attribute.
Some researchers (Lancaster 1966, Tversky 1972, Marmorstein et al. 1987, etc.)
already analyzed how consumer makes choice when commodity is heterogeneous in
the objective characteristic or attribute, but they didn’t set a simple enough assumption,
then got limited advancement. Such as, Lancaster (1966) etc. assumes one commodity
is a package of n attributes, and got limited advancement (compared with the
advancements gotten by this paper). We found, here, simple is more powerful. If we

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assume one commodity has only one attribute, we can get more advancements.
We find, under the assumption that commodity has only one attribute, the
relationship between two commodities will be quite simple, either the two commodities
own the same attribute, or the two commodities own different attributes. And, in real
world’s market, commodities owning the same attribute are often used to satisfy
consumer’s the same need, commodities owning different attributes are often used to
satisfy consumer’s different needs. Then, under the assumption that commodity has
only one attribute, consumer’s choices between two commodities can be divided into
the following two different types.
The first type of consumer choice, is consumer’s choice between commodities
that own the same attribute and satisfy the same need, such as consumer’s choice
between bread A and bread B. Bread A and bread B own the same objective attribute,
nutrition contained, and satisfy consumer’s the same need, the need of getting nutrition.
In this type of consumer choice, since commodities have the same objective
attribute, then, consumer’s choice logic can be better attribute at lower cost. Such
as, if bread A and bread B have the same price but contain different amounts of nutrition,
consumer can make a choice directly by nutrition, and choose the bread which contains
more nutrition.
In this type of consumer choice, since commodities have the same objective
attribute, then, commodities are good substitute to each other, then, consumer will
choose one commodity and totally give up the other. Such as, between bread A and
bread B, once consumer chooses bread A, she will totally give up bread B.
The second type of consumer choice, is consumer’s choice between commodities
that own different attributes and satisfy different needs, such as consumer’s choice
between bread and clothing. Bread and clothing own different attributes and satisfy
consumer’s different needs. Bread has the attribute of nutrition and satisfies consumer’s

need of getting nutrition, while clothing has the attribute of warmth keep ratio and
satisfies consumer’s need of keeping body warm.
In this type of consumer choice, since commodities own different objective
attribute, then, consumer’s choice logic cannot be better attribute at lower cost, and can
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only be higher utility at lower cost. Such as, when consumer makes a choice between
bread and clothing, consumer’s choice logic cannot be better attribute at lower cost, and
can only be higher utility at lower cost.
In this type of consumer choice, since commodities own different objective
attributes, then, commodities cannot substitute each other (at objective attribute level),
then consumer will not choose one and totally give up the other, and consumer will
choose a certain amount of each commodity. Such as, between bread and clothing,
consumer will choose a certain amount of each of bread and clothing, and will not
choose one and totally give up the other. Because, bread and clothing cannot substitute
each other (at objective attribute level), without any of bread and clothing, consumer
cannot survive.
Traditional economics assumes commodity is homogeneous, and implies
consumer’s choice is a one step one approach choice. One step is that consumer
directly chooses a bundle of commodities from the market. One approach is that
consumer makes the choice only by utility (or preference). (see literature review in §3).
But, in real world’s market, as analyzed in section 2, consumer often doesn’t make
choice in traditional economics’ one step one approach’s way.
We discovered, in real world’s market, in order to make a good choice at less effort,
the rational consumer often makes the choice in a two steps two approaches’ way (see
§2). At the first step, consumer will make the choice between commodities that satisfy
the same need by attribute (or preferentially by attribute), deciding which to buy. At
the second step, consumer will make the choice between commodities that satisfy

different needs by utility, deciding how many to buy.
Such as, suppose in the market, there are 40 brands of bread, bread A, B, C, …,
and 30 brands of clothing, clothing A, B, C, …… Suppose the 40 brands of bread
contain different amounts of nutrition and have different prices, suppose the 30 brands
of clothing have different warmth keep ratios and have different prices.
In this example, there are 40*30 = 1200 possible combinations of bread and
clothing. According to traditional consumer theory (preference and utility theory),
consumer will directly choose a bundle of bread and clothing by utility (or preference),
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among the 1200 possible combinations of bread and clothing. It’s obvious that, for
consumer, making the choice in this way is a huge and nearly impossible task.
This paper discovered, in order to make a good choice at less effort, in the real
world’s market, the rational consumer will make the choice in the following two steps
two approaches’ way.
At the first step, consumer will make the choice between different brands of bread,
finding out the best bread for her (e.g. bread C), and make the choice between different
brands of clothing, finding out the best clothing for her (e.g. clothing D). At this step,
consumer makes the choice by attribute or preferentially by attribute, and only decides
which bread and which clothing to buy (see §4.2.1).
At the second step, after consumer already decided which bread and which
clothing to buy (bread C, clothing D), consumer will make a choice between bread and
clothing, and choose the bundle of bread and clothing that has the largest utility under
budget constraint, such as 30 pounds of bread C and 2 suits of clothing D. At this step,
consumer makes the choice by utility, and decides how many bread and how many
clothing to buy (see §4.2.2).
We find, the above two steps two approaches choice is frequently happening
in real world’s market (§2). We strictly proved, the above two steps two

approaches choice is rational for consumer to make good choice at less effort (§5).
The contributions of the paper are two. (1) The paper is the first research that strictly
distinguished the two different types of consumer choice, at need and attribute level. (2)
The paper is the first research that discovered and proved the two steps two approaches
choice in real world’s market.
The remainder of the paper is organized as follows. Section 2 shows the two
different types of consumer choice and the two steps two approaches choice in real
world’s market. Section 3 provides the literature review. Section 4 provides a deeper
analysis on real world’s consumer choice. Section 5 strictly proves that the two steps
two approaches choice is rational for consumer. Section 6 shows how to make a good
choice by this paper’s consumer theory. Section 7 concludes.
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2. Consumer’s Choice Behavior in Real World’s Market
Here, we provide two simplified examples from the real world’s market, to show
the two different types of consumer choice and the two steps two approaches consumer
choice in real world’s market.
Example A
Mike was the newly appointed purchase manager in a steel company, in charge of
purchasing iron ore and coke. The present budget of Mike is given, 6 million dollars.
In the market, there are two types of iron ore, iron ore A and iron ore B. Iron ore A
contains iron element at 62%, the present price is 120 dollars/ton, iron ore B contains
iron element at 58%, the present price is 118 dollars/ton. There are two types of coke,
coke X and coke Y. Coke X contains calorie at 7000 kcals/kg, the present price is 200
dollars/ton, coke Y contains calorie at 7100 kcals/kg, the present price is also 200
dollars/ton.
Mike was newly appointed, and he had limited information about the price and
quality of iron ore and coke in market. Then, Mike made his choice decision in the

following way, actually, a two steps two approaches’ way.
At the first step, Mike searched the information about the price and quality of iron
ore and coke in the market, and decided to choose iron ore A and coke Y, because, among
different iron ores, iron ore A contains much more iron element but the price is only a
little higher, and, among different cokes, coke Y contains more calorie and the price is
the same (coke with more calorie is better for steel company). At this step, under given
prices, Mike made the choice decision directly by iron element or calorie, the objective
attribute of iron ore or coke. For Mike, this step of choice in fact is deciding which to
buy.
At the second step, after Mike already decided which iron ore and which coke to
buy, he made a balance between iron ore and coke under budget constraint, and chose to
buy 30000 tons of iron ore A and 12000 tons of coke Y, and used the budget up. At this
step, Mike’s approach of making choice is that 1 ton iron ore requires 0.4 ton coke, a
technique requirement of steel company to maximize the output. For Mike, this step of
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choice in fact is deciding how many to buy.
Why Mike’s choice had two steps? Because, only after Mike already decided which
iron ore and which coke to buy, he can know how many iron ore and coke to buy, since
iron ores or cokes had different prices and qualities.
Example B
In one day, Rose went to the supermarket to buy fruit and tissue for the next week
use for her family. Routinely, in each week, she bought 8 pounds of brand A apple,
and 7 bags of brand X tissue.
After Rose got in the supermarket, she found there was a promotion of brand B
apple. Rose seldom buy brand B apple because its price is too high, twice as the price
of brand A apple, though it is much sweeter. But in this day, because of the promotion,
the price of brand B apple was the same as brand A apple, then, Rose decided to buy

10 pounds of brand B apple, two pounds more than she routinely purchased. Because
Rose often took a just enough money to go shopping, then, after she bought 10
pounds of brand B apple, she reduced the budget of tissue, and bought the tissue of
brand Y, which has lower quality and lower price than the originally planned brand X
tissue. At last, Rose bought 10 pounds of brand B apple, and 7 bags of brand Y tissue.
Our Findings from the Two Examples
The above two examples are very common in real world’s market, and there are
numerous phenomena similar to them. In the two examples, we can find some
important laws and paradigms of consumer behavior hiding behind. These laws and
paradigms of consumer choice were not discovered enough or even never addressed.
(1) We can find that, consumer’s choice is a combination of two different types of
choice. In the two different types of choice, commodities are different in attribute
situation, and consumer makes choice by different logic and different approach.
Such as, in example A, Mike’s choice is a combination of two different types of
choice. The first type of choice, is consumer’s choice between commodities that satisfy
the same need, such as Mike’s choice between different iron ores or Mike’s choice
between different cokes. The second type of choice, is consumer’s choice between
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commodities that satisfy different needs, such as Mike’s choice between iron ore and
coke. And, in example B, Rose’s choice is also a combination of two different types
of consumer choice.
In the two different types of consumer choice, commodities are different in
attribute situation, then are different in substitution situation.
In the first type of consumer choice (consumer choice between commodities that
satisfy the same need), commodities have the same attribute, then, commodities can
well substitute each other, and consumer can choose one and give up the other. Such
as, in example A, when Mike made a choice between iron ore A and iron ore B, iron

ore A and iron ore B have the same attribute, the iron element contained, then iron ore
A and iron ore B can perfectively substitute each other, and Mike chose iron ore A and
gave up iron ore B.
In the second type of consumer choice (consumer choice between commodities
that satisfy different needs), commodities are different in attribute, then, commodities
cannot substitute each other (at attribute level), then, consumer will not choose only
one and give up the other, and consumer will choose a certain amount of each
commodity. Such as, when Mike made a choice between iron ore and coke, iron ore
and coke are quite different in attribute, iron ore has the attribute of iron element
contained, while coke has the attribute of calorie contained, then, iron ore and coke
cannot substitute each other (at attribute level), and Mike chose a certain amount of
each of iron ore and coke.
And in example B, in the two different types of consumer choice, commodities
are also different in attribute situation and substitutability.
In the two different types of consumer choice, consumer’s choice logics are
different, and consumer makes choice decision by different approaches.
In the first type of consumer choice, consumer’s choice logic is better attribute at
lower cost1. Such as, when Rose made a choice between different apples, her logic is
better attribute at lower cost, and her approach of choice is choosing the apple which
In this paper, better attribute at lower cost means consumer will choose the commodity with
not worse attribute and not higher price.
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is sweeter when apples have the same price. Such as, when Mike made a choice
between different iron ores, his logic is better attribute at lower cost, and his approach
of choice is approximately choosing the iron ore which has higher iron element

content/price1.
In the second type of consumer choice, consumer choice logic is higher utility at
lower cost. Such as, when Mike made a choice between iron ore and coke, his logic of
choice is higher utility (higher output)2 at lower cost, and his approach of choice is
choosing the bundle of iron ore and coke that generate the largest utility (largest
output) under budget constraint. And, between apple and tissue, Rose’s choice logic is
also higher utility at lower cost, and Rose’s approach of choice is choosing the bundle
of apple and tissue which has the maximum utility under budget constraint.
(2) We can find that, in order to make a good choice at less effort, consumer will
make a choice decision in a two steps two approaches’ way.
Such as in Example A, Mike made his choice in a two steps two approaches’ way.
At the first step, Mike made the choice between different iron ores and made the
choice between different cokes, by attribute of iron ore or by attribute of coke,
deciding which iron ore to buy and which coke to buy. At the second step, after Mike
already decided which iron ore and which coke to buy, Mike made a choice between
iron ore and coke, by utility (by output of the production), deciding how many iron
ore and coke to buy under budget constraint.
Why Rose didn’t make her choice decision in Mike’s two steps two approaches
way? One reason is, when Rose bought the apple, she often already known the price
and quality of tissue, then, she can judge the best quantity of apple for her. Or here,
Rosen can accomplish the two steps two approaches choice only in mind, based on
the information she already owned. The other reason is, Rose needn’t make a very
good choice decision, because it will not hurt her family much if she made a not very
scientific purchase decision of apple and tissue. But, if Rose was at Mike’s position
It’s obvious that, choosing the commodity with higher attribute/price is also a choice under the
logic of better attribute at lower cost.
2 Here, producer is seen as personal consumer, and for producer, higher output is seen as higher
utility.
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and situation, she would follow Mike’s way.
In the following, this paper strictly proved, the above two steps two approaches
choice is rational for consumer (see Section 5).

3. The Literature Review
Actually, if we observed real world’s consumer choice behavior, we can find that,
in the real world, consumer’s choice is often a combination of the above two different
types of choice. Because, in real world’s market, consumer always has several needs
to be satisfied, and, to satisfy each need, there are many commodities being the
options, such as, to satisfy consumer’s need of eating apple, there are many brands or
many types of apple in the market, then, consumer not only needs to make a choice
between commodities that satisfy different needs, but also needs to make a choice
between commodities that satisfy the same need.
Since real world’s consumer choice is often a combination of two different types
of choice, and the two different types of choice are different in choice logic, then, an
important question arises. The question is, in order to make a good choice at less effort,
how consumer combines the two different types of choice together?
But literature review shows, few and even no researchers addressed how consumer
combines the two different types of choice together. Economists always focused on
consumer’s choice between commodities that satisfy different needs, while marketers
always focused on consumer’s choice between commodities that satisfy the same need.
Economists always Focused on Consumer’s Choice Between Commodities
that Satisfy Different Needs
When analyzing consumer’s choice behavior, present economists always focused
on the second type of consumer choice, consumer’s choice between commodities that
satisfy different needs, and use the theory found to explain consumer’s all choices.

For example, when analyzing consumer’s choice behavior, in their Economics,
Samuelson and Nordhaus (2005, 2010)only analyzed consumer’s choice between food
and clothing, and based on this built the consumer choice theory. Same as Samuelson
and Nordhaus, in their Microeconomics, Pindyck and Rubinfeld (2013) mostly
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analyzed consumer’s choice between food and clothing. Similarly, when building the
basic theory of consumer choice, in Principle of Microeconomics, Mankiw (2016)
mostly analyzed consumer’s choice between Pepsi and pizza, but actually, Pepsi and
pizza are mostly used to satisfy people’s different needs. Pepsi is mostly used as drink,
bringing water to human body, while Pizza is mostly used as food, bringing nutrition
or calorie to human body. And, after analysis mostly on consumer’s choice between
commodities that satisfy different needs, economists as mentioned above got the
consumer choice theory, preference and utility theory, and use it to explain consumer’s
all choices.
The reason that economists always focused on consumer’s choice between
commodities that satisfy different needs, and use the theory found to explain consumer’s
all choices, is because economists always believe that, in above two different types of
consumer choice, consumer choice logics are the same. But, as analyzed in this paper,
the two different types of consumer choice are quite different in consumer choice logic.
In traditional economics’ preference and utility theory, consumer’s choice in fact
is a one step one approach choice. One step is that consumer directly chooses a bundle
of commodities from the market. One approach is that consumer makes the choice only
by utility (or preference).
In history, many researchers of economics gave important contributions to
consumer choice theory, such as Menger (1871), Jevons (1871), Walras (1899),
Edgeworth (1881), Marshall (1890,1938), Pareto (1906), Samuelson (1938), Hicks
(1939), Debreu (1959), Lancaster (1966), but they always focused on consumer’s

choice between commodities that satisfy different needs, though they might not intend
to.
Such as, Menger (1871) focused on consumer’s choice between commodities
that satisfy different needs, such as consumer’s choice between food and tobacco.
Marshall (1938) only analyzed consumer’s choice between commodities that satisfy
different needs, such as consumer’s choice between sock and vest.
Such as, the revealed preference theory created by Samuelson (1938) is better to
be seen as a theory to explain consumer’s choice between commodities that satisfy
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different needs. Because, between commodities that satisfy different needs,
consumer’s preference is difficult to be known and predicted out, then revealed
preference is necessary. But, between commodities that satisfy the same need, as
analyzed in this paper, consumer’s preference is often easily to be known and
predicted out, such as Rose’s preference between apple A and apple B in Example B
is easily to be known and predicted out. This means, here, the precondition of
revealed preference doesn’t exist.
Hicks (1939) also focused on consumer’s choice between commodities that
satisfy different needs, when he built the indifference curve in his Value and Capital.
It’s obvious that, for consumer’s choice between commodities that satisfy the same
need, such as between different iron ores or between different cokes in example A,
indifference curve will have very limited value in analysis then should be abandoned
by rule of Ockham's Razor.
Lancaster (1966) analyzed the role of commodity’s characteristic in consumer
choice, and his approach actually mostly focused on consumer choice between (or
among) commodities that satisfy different needs and paid limited attention to
consumer’s choice between commodities that satisfy the same need.
Though some research on consumer choice were not narrowed in consumer’s

choice between commodities that satisfy different needs, and even addressed
consumer’s choice between commodities that satisfy the same need, such as von
Neumann & Morgenstern (1944), Simon (1955), Akerlof (1970), Rosen (1974), Aviv
Nevo (2011), Jolivet & Turon (2019), Botond Kszegi & Matějka Filip (2020) etc., but
these research often focused on one specific topic and didn’t address the basic logic
and paradigm of consumer choice that this paper focused on. Strotz (1957), Gorman
(1959), etc. developed the theory of separable utility and two stages budgeting of
consumer choice, but they still didn’t disclose real world’s consumer choice paradigm
deeply enough.
As a whole, in the past, when building consumer choice theory, economists always
focused on consumer’s choice between commodities that satisfy different needs,
resulting in that, present economics mostly focuses on consumer’s choice between
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commodities that satisfy different needs, and use preference and utility theory to
explain consumer’s all choices.
Marketers always Focused on Consumer’s Choice between Commodities that
Satisfy the Same Need
Different from economists, researchers of marketing paid more attention to the
first type of consumer choice, consumer’s choice between commodities that satisfy
the same need, such as consumer’s choice between different cars, or consumer’s
choice between different computers. Because consumer’s choice between
commodities that satisfy the same need does influence the sales of goods and the
market share of firms, then, it is necessary for marketing researchers to pay enough
attention to it. In the research of marketers, commodities of competing brands actually
are commodities that satisfy consumer’s the same need, though the commodities are
of different brands.
Such as, in present widely published textbooks of marketing, the authors always

focus on consumer’s choice between commodities that satisfy the same need. Such as,
in Principle of Marketing of Philip Kotler et. al. (2012), consumer choice procedure
begins at the recognition of consumer’s certain need, and consumer will make a
choice between commodities that satisfy this same need. In Michael R. Solomon
(2013)’s Consumer Behavior, consumer will recognize her problem and choose the
best commodity to solve the problem, actually, these consumer behaviors are also
consumer’s choice between commodities that satisfy the same need.
Till now, various strategies and models of consumer choice were provided by
marketers and psychologists (Here, we won’t strictly distinguish between marketer
and psychologist), such as Elimination by Aspects (Tversky 1972), Lexicographic
Strategy (Fishburn 1974), Attribute-Belief Model (Fishbein 1975), Weighted Adding
Strategy (e.g. Green, Srinivasan 1978, Kahn, Meyer 1991), Equal Weight Strategy
(Dawes 1979), Majority of Confirming Dimensions Strategy (Russso, Dosher, 1983),
Counts of Good and Bad Strategy (Alba, Marmorstein, 1987). Deliberation Without
Attention (Ap Dijksterhuis, et. al. 2006). These strategies or models mostly focus on
consumer’s choice between commodities that satisfy the same need.
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Some models of consumer choice developed by marketers (and psychologists) do
not narrow in consumer’s choice between commodities that satisfy the same need, such
as AIDA model (Attention- Interest- Desire- Action Model, Lewis 1898), StimulusOrganism-Response Model (Mehrabian A, Russell J A 1974), Five Consumption Values
Model (Sheth, J. N., Newman, B. I. and Gross, B.L. 1991), etc. But these models didn’t
give enough attention to the difference between the two different types of consumer
choice, and didn’t address the consumer choice paradigm and logic that this paper
discussed.
Conclusion of Literature Review
As a whole, literature review shows that, though real world’s consumer choice is
often a combination of two different types of consumer choice, present research from

economics or marketing always focused on one and neglected the other. Economists
always focused on consumer’s choice between commodities that satisfy different needs,
and marketers always focused on consumer’s choice between commodities that satisfy
the same need. No researchers provided a scientific combination of the two different types
of choice together.
In fact, it’s nearly impossible for the researchers in the past to combine the two
different types of consumer choice together in analysis, since researchers in the past
didn’t strictly distinguish the above two different types of consumer choice.
And, when analyzing consumer’s choice when commodities are heterogeneous in
attribute, researchers (Lancaster 1966, Tversky 1972, Joseph W. and Marmorstein 1987,
etc.) often assumed commodity has n attributes. This assumption is not simple enough
and prevents researchers to discover the more important laws of consumer choice. Such
as, Lancaster (1966) assumes one commodity is a package of n attributes, and argues
consumer will choose a bundle of commodities that has larger quantity of positive
attributes. Lancaster (1966)’s contribution is not enough to well explain real world’s
consumer choice when commodity is heterogeneous in attribute. As analyzed in this paper,
here, simple is more powerful. If we assume commodity has only one attribute, we can
discover some more important laws of real world’s consumer choice behavior.
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4. A Deeper Research on Real World’s Consumer Choice
Here, we provide a deeper research on real world’s consumer choice. We will
analyze how consumer makes choice when commodity is heterogeneous in attribute.
We will show that, why there are two different types of consumer choice and why
consumer will make choice in two steps two approaches’ way.
4.1. Consumer’s Need and Commodity’s Attribute
Lancaster (1966), Rosen (1974), etc., argued that, commodity owns certain
objective attribute or characteristic, and the utility of commodity comes from the

objective attribute or characteristic of commodity.
Lancaster and Rosen are right. In real world’s market, consumer’s utility
(satisfaction) from commodity does come from attributes of commodity. Such as,
consumer’s satisfaction from bread does come from the nutrition of bread.
But real world’s market goes a little farer than Lancaster (1966) and Rosen
(1974), since in real world’s market, consumer’s need is closely related with
commodity’s objective attribute (In this paper, attribute is the same as characteristic).
We can find, in real world’s market, the satisfaction of consumer’s certain need
by commodity, is a use of commodity’s specific attribute. Such as, the satisfaction
of consumer’s need of getting nutrition, is a use of bread’s attribute that bread
contains nutrition. The satisfaction of consumer’s need of keeping body warm, is a
use of clothing’s attribute that clothing can keep body warm. In fact, this idea is
widely accepted in many other disciplines. Such as, most pharmaceutical scientists
believe that, the satisfaction of consumer’s need by drug, is a use of drug’s attribute
that drug contains certain active ingredient.
But in economics, this idea wasn’t paid enough attention to and was often ignored.
Economists tend to argue that consumer’s consumption of commodity is a process of
getting satisfaction (utility), actually ignored the important fact that the satisfaction of
consumer’s certain need is a use of commodity’s specific attribute, such as Marshall
(1890), Hicks (1939), Samuelson and Nordhaus (2005, 2010), Mankiw (2016).
And, in real world’s market, consumer’s different need is often satisfied by
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different attribute. Such as, the need of getting nutrition is satisfied by bread’s
attribute, nutrition contained, but, the need of keeping body warm is satisfied by
clothing’s attribute, warmth keep ratio. There does exist the situation that one attribute
of commodity can satisfy consumer’s several needs, such as, alcohol is used to satisfy
two needs of consumer, the need to drink alcohol and the need to kill germs. But, this

situation is not the majority of real world’s market.
And, in real world’s market, the same need of consumer is often satisfied by the
same attribute. Why bread, noodle, rice, etc. are all used to satisfy consumer’s need of
getting nutrition？Because they have the same attribute, nutrition contained, then are
used to satisfy consumer’s the same need, the need of getting nutrition.
And, in real world’s market, commodities satisfying the same need will have the
same attribute. Such as, different brands of bread are used to satisfy consumer’s the
same need, the need of getting nutrition, and, different brands of bread have the same
attribute, nutrition contained (Though the amount of nutrition might be different).
And, in real world’s market, commodities satisfying different needs will have
different attributes. Such as, bread and clothing are used to satisfy consumer’s
different needs, and, bread and clothing have quite different attribute, bread has the
attribute of nutrition contained, while clothing has the attribute of warmth keep ratio.
As whole, in real world’s market, consumer’s need is closely related with
commodity’s attribute. Without considering some special situation, consumer’s
different needs are satisfied by different attributes of commodity, consumer’s the
same need is satisfied by the same attribute of commodity, and, commodities
satisfying different needs will have different attributes, commodities satisfying
the same need will have the same attribute.
4.2. The Two Different Types of Consumer Choice
As analyzed above, in the real world’s market, the satisfaction of consumer’s
certain need by commodity, is a use of commodity’s specific attribute, and, consumer’s
different needs are often satisfied by different attributes of commodity, consumer’s
the same need is often satisfied by the same attribute of commodity, and, commodities
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satisfying the same need will have the same attribute, commodities satisfying different
need will have different attributes.

In real world’s market, consumer’s one need might be satisfied by several
attributes of commodity. Such as, consumer’s need of driving is satisfied by car’s
attributes such as speed, acceleration, etc. And, in real world’s market, commodity
might have several attributes, such as a computer will have attributes such as CPU
speed, hard disk capacity, etc.
To find out the basic law of consumer choice quickly, at the beginning, we will
focus on the simplest situation. The simplest situation is that, one need can be
satisfied by one attribute, and one commodity only has one attribute. Later, we can
analyze the situation that one need is satisfied by several attributes and one
commodity have several attributes.
In this paper, at the beginning, we assume that, one need of consumer can be
satisfied by only one attribute, different need is satisfied by different attribute, and
each commodity has only one attribute. We assume the attribute of commodity is
objective, observable and positive. Under these assumptions, there will be a one-one
relationship between consumer’s need and commodity’s attribute, for one certain need
of consumer, there is one certain attribute of commodity to satisfy it.
And, under these assumptions, the relationship between two commodities will be
quite simple, either the two commodities own the same attribute and satisfy the same
need, or the two commodities own different attributes and satisfy different needs.
Then, consumer’s choices between two commodities can be classified into two
different types.
The first type of consumer choice, is consumer’s choice between commodities that
own the same attribute and satisfy the same need. We call this type of consumer choice
as consumer’s choice between commodities that satisfy the same need. Such as,
consumer’s choice between different bread can be seen as consumer’s choice between
commodities that satisfy the same need. Different bread own the same attribute, nutrition
contained in bread, and satisfy consumer’s the same need, the need of getting nutrition.
The second type of consumer choice, is consumer’s choice between commodities
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that own different attributes and satisfy different needs. We call this type of consumer
choice as consumer’s choice between commodities that satisfy different needs. Such as,
consumer’s choice between bread and clothing can be seen as consumer’s choice
between commodities that satisfy different needs. Bread and clothing own different
attributes and satisfy consumer’s different needs. Bread owns the attribute of nutrition
and satisfy consumer’s need of getting nutrition, while clothing owns the attribute of
warmth keep ratio and satisfy consumer’s need of keeping body warm.
4.2.1. Consumer’s Choice between Commodities that Satisfy the Same Need
Between commodities that satisfy the same need, since commodities have the
same objective attribute, then commodities are good substitute to each other, then,
consumer will often choose one and give up the other.
Such as, between bread A and B, since bread A and B have the same attribute,
nutrition contained, then, consumer will often choose one bread and give up the other.
Then, an important question arises. Between commodities that satisfy the same
need, which one will be chosen by consumer?
We find, between commodities that satisfy the same need, consumer will make a
choice by attribute (when attribute is cardinal) or preferentially by attribute (when
attribute is ordinal). Here, commodity’s attribute is cardinal also implies both
commodity and commodity’s attribute are dividable and additive.
Consumer’s Choice when Attribute Is Cardinal
When attribute of commodity is cardinal, between commodities that satisfy the
same need (between commodities that own the same attribute), the rational consumer
will choose the commodity with higher attribute/price. Because, under any given
expenditure, buying the commodity with higher attribute/price will bring more
positive attribute to consumer, then will bring higher utility to consumer. Such as,
suppose bread is only used to provide nutrition and bread’s nutrition is cardinal,
between different bread, consumer will choose the bread that has higher
nutrition/price.

It’s obvious that, choosing the commodity with higher attribute/price is also a
choice under the logic of better attribute at lower cost.
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Consumer’s Choice when Attribute Is Ordinal
When attribute of commodity is ordinal, between commodities that satisfy the
same need (between commodities that own the same attribute), consumer cannot
make a choice simply by attribute/price, since attribute is ordinal then attribute/price
is meaningless. Here, consumer will make a choice preferentially by attribute.
In this paper, making choice preferentially by attribute means that, if consumer
can make the choice by attribute or by utility, consumer will choose to make the
choice by attribute, only consumer cannot make the choice by attribute, consumer will
make the choice by utility, since making choice directly by attribute is often much
easier.
We take consumer’s choice between clothing A and clothing B as the example, to
show how consumer make a choice preferentially by attribute, when attribute of
commodity is ordinal.
Suppose in the market, there are clothing A and clothing B. Suppose clothing A
and clothing B have the same price p , but have different warmth keep ratio, clothing
A’s warmth keep ratio is wA , clothing B’s warmth keep ratio is wB . Y is consumer’s
income.
Here, consumer can make the choice between clothing A and clothing B by the
following two approaches.
The first approach is by attribute. Consumer can compare the warmth keep ratio
of clothing A and clothing B, and choose the clothing that has higher warmth keep
ratio, if wA  wB , choose clothing A, and, if wA  wB , choose clothing B. Making
choice in this way is quite easy, since consumer can easily find out which clothing has
higher warmth keep ratio w (Suppose warmth keep ratio is labeled on clothing and

consumer noticed it). In this way of choice, consumer only needs to know the
qualitative relationship between clothing’s warmth keep ratio w and clothing’s
utility U ( w) , if U ( w) is positively related with w , choose the clothing with hihger

w , if U ( w) is negatively related with w , choose the clothing with lower w .
The second approach is by utility. Consumer can first calculate out U ( wA ) and
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U ( wB ) , then compare U ( wA ) with U ( wB ) , if U ( wA )  U ( wB ) , choose clothing A,
otherwise, choose clothing B. Here, making choice in this way is not easy, since it is
difficult for real world’s consumer to know precisely how much U ( wA ) and U ( wB )
are. In this way of choice, to make a good choice, consumer needs to know the
quantitative relationship between clothing’s warmth keep ratio w and clothing’s
utility U ( w) .
It’s obvious that, consumer will prefer to make the choice in the first way, since
making choice in the first way is much easier. In real world’s market, it’s easy for
consumer to know the qualitative relationship between clothing’s attribute and
clothing’s utility, such as, it’s easy for consumer to know that, the clothing with
higher warmth keep ratio will bring higher utility (or satisfaction). But, it’s often quite
difficult for consumer to know the quantitative relationship between clothing’s
attribute and clothing’s utility, such as, consumer often doesn’t know precisely how
much utility she can get from the clothing with a given warmth keep ratio.
In real world’s market, it’s easy for consumer to know the qualitatitve
relationship between commodity’s attribute and commodity’s utility, but, it’s quite
difficult for consumer to know the quantitative relationship between commodity’s
attribute and commodity’s utility. Such as, nearly all consumer knows that, computer
with CPU speed 2000 Mhz can bring higher utility than computer with CPUspeed
1000Mhz. But, nearly no consumer knows that how much utility she can get from the

computer with CPU speed 2000Mhz and how much utility she can get from the
computer with CPU speed 1000Mhz.
Why consumer makes choice preferentially by attribute, not by attribute? The
reason is that, there are some situations that consumer cannot make choice only by
attribute, and consumer have to make choice by utility. Such as, suppose between
clothing A and clothing B, clothing A has higher warmth keep ratio but also has higher
price. Here, consumer cannot find out which clothing is better only by attribute. Here,
consumer have to make a choice by utility, and compare U ( wA , Y  p A ) with

U ( wB , Y  pB ) , if U ( wA , Y  p A )  U ( wB , Y  pB ) , choose clothing A, otherwise,
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choose clothing B.
We provide another example to show that consumer will make choice
preferentially by attribute. Suppose there are clothing A, B and C. Clothing A and B
have the same price, but clothing A has higher warmth keep ratio. Clothing C has the
lowest warmth keep ratio and the lowest price.
Here, consumer will firstly make a choice directly by attribute, and eliminate
clothing B from consideration. Secondly, between clothing A and clothing C,
consumer will compare U ( wA , Y  p A ) with U ( wC , Y  pC ) , if U ( wA , Y  p A ) 

U ( wC , Y  pC ) , choose clothing A, otherwise, choose clothing C.
Here, consumer firstly makes the choice by attribute because consumer prefers to
make the choice by attribute. Here, for consumer, firstly in fact means preferentially.
Strict proving of this is so easy then we omit it.
4.2.2. Consumer’s Choice between Commodities that Satisfy Different Needs
Between commodities that satisfy different needs (between commodities that own
different attributes), since commodities have different attributes, then, commodities

cannot substitute each other (at attribute level), then, consumer will not choose one and
give up the other, and consumer will often choose a certain amount of each
commodity.
Such as, between bread and clothing, since bread and clothing are different in
attribute, then, bread and clothing cannot substitute each other (at attribute level), then,
consumer will often choose a certain amount of each of bread and clothing. In fact,
without any of bread and clothing, consumer cannot survive, then, between bread and
clothing, consumer won’t choose one and give up the other.
Between commodities that satisfy different needs, since commodities own different
attributes, then, consumer cannot make an easy choice directly by attribute, and
consumer can only make the choice directly by utility, and consumer will choose the
bundle of commodities that has the largest utility under budget constraint.
Suppose commodity A and B satisfy different needs. Here, under budget Y,
consumer’s choice is the solution of the following maximization problem.
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Maximize U ( xA , xB )
subject to pA xA  pB xB  Y
where x A , xB are the quantity of commodity A ,B, and, p A , pB are the price of
commodity A, B.
4.3. Consumer Will Make Choice in Two Steps Two Approaches’ Way
In real world’s market, to satisfy consumer’s the same need, there are often many
commodities, and, among these commodities, the magnitude of the same attribute is
often different, and, the price also is often different. Then, for consumer to satisfy her
certain need, she needs to make a choice between commodities that satisfy the same
need, and find out the best commodity to satisfy her need.
Such as, suppose Mike wants to buy a computer to satisfy his need of data
processing. In the market, there are many brands of computer, Dell computer, Apple

computer, ASUS computer, etc., these brands of computer have different CPU speed
and also different price. Then, Mike needs to make a choice between (or among)
different brands of computer, and choose the computer which is the best for him.
And, in real world’s market, one commodity often has only one or limited
attributes, then can only satisfy consumer’s one need or limited several needs, then,
for consumer, she needs to buy many commodities to provide many attributes to
satisfy her many needs. Since consumer’s budget is limited, then, consumer needs to
balance the quantity of commodities bought. This means, consumer also needs to
make a choice between commodities that satisfy different needs.
Such as, bread has the attribute of nutrition contained, and can satisfy consumer’s
need of getting nutrition, but bread cannot satisfy consumer’s need of keeping body
warm, which is satisfied by attribute of warmth keep ratio, an attribute owned by
clothing. Since besides the need of getting nutrition, consumer also have the need of
keeping body warm, then, consumer not only need to buy bread, but also need to buy
clothing. Since the budget is limited, then, consumer needs to make a balance between
the quantity of bread and quantity of clothing bought by her, this also means,
consumer needs to make a choice between bread and clothing.
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The above analysis in fact means, in real world’s market, consumer not only
needs to make a choice between commodities that satisfy the same need, but also need
to make a choice between commodities that satisfy different needs. Then, real world’s
consumer choice is often a combination of above two different types of consumer
choice.
There are special situations that consumer only makes choice between
commodities that satisfy the same need, or only makes choice between commodities
that satisfy different needs.1 But, in real world’s market, these situations are only
special situation, mostly, consumer’s choice is often a combination of the two

different types of consumer choice.
Since consumer’s choice is a combination of the two different types of choice,
then, how consumer combines the two different types of choice together, is an
important theoretical problem to be resolved.
Traditional economics argues consumer will choose a bundle of commodities that
has the largest utility under budget constraint (Samuelson 2005, 2010, Mankiw 2016,
etc.). Traditional economics in fact didn’t answer the question that how consumer
combines the two different types of consumer choice together. Strotz (1957), Gorman
(1959), etc. developed the theory of separable utility and two stages budgeting of
consumer choice, but they still didn’t strictly distinguish the two different types of
consumer choice at attribute level, and didn’t disclose how real world’s consumer
combines the two different types of consumer choice together.
As discovered in the two examples in Section 2 of this paper, in real world’s market,
consumer will combine the two different types of consumer choice in a two steps two
approaches’ way. Consumer will first make the choice between commodities that
satisfy the same need by attribute, deciding which to buy, then make the choice between
commodities that satisfy different needs by utility, deciding how many to buy.
Why consumer will make choice in the two steps two approaches’ way? The reason
is that, making choice in the two steps two approaches way is a more efficient way to
Such as, at one noon, Mike is hungry and he decide to buy bread, while in the shop near Mike’s
office, there are 5 different brands of bread, then, Mike choose one bread from 5 different brands of
bread. Here, Mike’s choice is only a choice between commodities that satisfy the same need.
1

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make good choice at less effort. Section 5 strictly proved, the two steps two approaches
choice is the more efficient way for consumer to make good choice at less effort.

4.4. Consumer’s Choice When Commodity Has Several Attributes
In real world’s market, commodity might have several attributes. Such as,
computer has the attributes of CPU speed, hard disk capacity, etc.
Though in real world’s market, commodity might have several attributes, but one
certain commodity is often designed to satisfy consumer’s one certain need, then,
different commodity often has different attribute. And, though in real world’s market,
commodities might share some attributes, such weight, size, etc., but these attributes
often have quite different meanings to consumer, then these attributes are better to be
seen as different attributes. Such as, bread and computer share the same attribute,
weight, but, the weight of bread and the weight of computer have different meaning to
consumer, weight of bread is positive to consumer, a more weighting bread often
means more nutrition, while weight of computer is often negative to consumer, a more
weighting computer often makes consumer less satisfied.
The basic logic of consumer’s choice when commodity has only one attribute can
also be used to explain consumer’s choice when commodity has several attributes.
Such as, computer has several attributes, such as CPU speed and hard disk capacity,
etc. Suppose computer A and computer B have same price but computer A has higher
CPU speed and larger hard disk capacity. Here, consumer will choose computer A, by
the logic of better attribute at lower cost.
An alternative way to deal with the situation that commodity has several attributes
is that, we can define a new attribute, commodity’s quality, commodity’s quality is a
function of commodity’s several attributes, and commodity’s quality might be
cardinal or ordinal. Then, between commodities that satisfy the same need, consumer
can make a choice by quality, and, when qualtiy is cardinal, consumer will choose the
commodity with higher quality/price. In this way, the above consumer choice laws
can also be used to explain consumer’s choice behavior when commodity has several
attributes, except that we need use quality instead of attribute.
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For the detailed analysis of consumer’s choice when each commodity has several
attributes, Lancaster (1966) etc. already made some important contributions, then, we
won’t address it more.

5. Proving the Two Steps Two Approaches Choice
In this section, we strictly prove that, making choice in above the two steps two
approaches way is rational for consumer to make a good choice at less effort.
The detailed proving is arranged in Appendix A.
In the proving, we assume consumer has n different needs, the n different needs are
satisfied by n different attributes z1 ,..., zi ,..., zn . We assume that, there are mi
commodities that can provide the i th attribute, and consumer chooses only one from

mi commodities to get the i th attribute. In the proving, consumer’s utility function is
U  U ( z1 ,..., zi ,..., zn )
Where U is the utility, zi is the quantity of the i th attribute. Assume consumer will
choose the bundle of commodities that has the largest utility under budget constraint.
The bundle of commodities (that has the largest utility under budget Y ) is the solution
of the following maximization problem with constraint in commodity space.
Maximize U ( z1 ,..., zi ,..., zn )
n

subject to

 Px
i 1

i i

Y

with zi  qi xi , i  1, 2,..., n

Here, one unit of commodity xi owns i th attribute at qi , and zi  qi xi is the total
quantity of i th attribute provided by commodity xi . Pi is commodity xi ’s price,
and Y is consumer’s budget.
The above maximization problem can be transferred into a maximization problom
with constraint in attribute space.

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Maximize U ( z1 ,..., zi ,..., zn )
n

subject to

pz
i 1

i i

Y

pi  Vi
with zi  qi xi , i  1, 2,..., n
where pi is the price of i th attribute when consumer buys commodity xi . There are

mi commodities that can provide the i th attribute, then, there are mi prices of i th

attribute, and, the mi prices of the i th attribute are represented by price set Vi .
We find, to solve above maximization problem, mathematically, the more efficent
way is a two steps two approaches way, first finding out the lowest attribute price in
price set Vi by attribute, then finding out the best bundle of commodities by utility.
We argue, the rational consumer will follow the mathematically more efficient way.
Then, the rational consumer’s choice will be a two steps two approaches choice. (for
detailed proving, see Appendix A).

6. How to Make Good Choice by this Paper’s Consumer Theory?
Suppose in the market, there are 10 brands of bread and 10 brands of computer. The
10 brands of bread have different price and contain different amount of nutrition. The
10 brands of computer have different price and different CPU speed. Then, for
consumer to buy bread and computer, how to make a good choice at least effort?
Following this paper’s consumer theory, at the first step, the consumer should find
out the best computer and the best bread for her. Among 10 brands of bread, the
consumer can choose the bread that has the highest nutrition/price. Among 10 brands
of computer, the consumer can first eliminate the computer that has higher price but
lower CPU speed, then, among the brands of computer left, the consumer can choose
the computer with the best match of CPU speed and price for her.
At the second step, consumer should make the choice between the bread and the
computer chosen at the first step, choosing the best bundle of bread and computer for
her, such as 20 pounds of bread and 1 unit of computer.
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