Revealed Preference
Revealed preference theory, pioneered by American economist Paul Samuelson, is a method for comparing the influence of policies on consumer behavior. These models assume that the preferences of consumers can be revealed by their purchasing habits. Revealed preference theory came about because existing theories of consumer demand were based on a diminishing marginal rate of substitution (MRS). This diminishing MRS relied on the assumption that consumers make consumption decisions to maximize their utility. While utility maximization was not a controversial assumption, the underlying utility functions could not be measured with great certainty. Revealed preference theory was a means to reconcile demand theory by defining utility functions by observing behavior.
Read more about Revealed Preference: Definitions and Theory, Motivation, Criticism
Famous quotes containing the words revealed and/or preference:
“The secret things belong to the LORD our God, but the revealed things belong to us and to our children forever, to observe all the words of this law.”
—Bible: Hebrew, Deuteronomy 29:29.
“There is nothing more likely to drive a man mad, than the being unable to get rid of the idea of the distinction between right and wrong, and an obstinate, constitutional preference of the true to the agreeable.”
—William Hazlitt (1778–1830)