In this paper , we present an equilibrium model of asset pricing. The basic model considers a production economy of two classes of investors with habits formations: one class have "internal habit" which habit depends on an agent's own consumption and the agent takes account of this when choosing how much to consume; the other class have "external habit", which habit depends on aggregate consumption that is unaffected by any one agent's decisions. We use the model to examine the effect of preference heterogeneity on asset pricing. We find that in generally , internal habit increase the equity premium while external habit effect on equity premium dependent on the correlation between habits level and risk assets.