We kick off the discussion of Naked Economics by Charles Wheelan with a basic concept discussed in chapter one:

Individuals act to make themselves as well off as possible. They use their money to make themselves happy, in both a long-term and short term way. It is called “maximizing utility” and, in short, means getting the best collection of things in exchange for your money. Things include services and altruistic spending which has emotional/social benefit.

Our preferences change as our wealth changes. For example: Luxury items are goods we buy in increasing quantities as we grow richer, like sports cars and good wine. Wealthy people spend hundreds of dollars on a bottle of wine because they can. Wealthy people spend more, as a proportion of their income, on environmental causes because they can.

I hear echoes of this when my buyers get fed up with house hunting. They tell me that they are willing to pay what the seller wants for a property, in high-demand situations, because they can. I have found this mind-boggling, especially in the past few years. I have run into a certain number of clients every year who want what they want and will pay extra for it, because they can. It breaks my buyer-broker heart. It also drives up the market for future buyers.

Is it maximizing utility to spend what you need to, in order to live the way you want to live?

Has it made huge portions of our market into a luxury item? Just because there are people with either high income or wealth here, has it wrecked the market for everyone else?