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 television screen, so unlike the movie screen, sharply reduced human beings, revealed them as small, trivial, flat, in two banal dimensions, drained of color. Wasn’t there something reassuring about it!—that human beings were in fact merely images of a kind registered in one another’s eyes and brains, phenomena composed of microscopic flickering dots like atoms. They were atoms—nothing more. A quick switch of the dial and they disappeared and who could lament the loss?”
—Joyce Carol Oates (b. 1938)
“Do not discourage your children from hoarding, if they have a taste to it; whoever lays up his penny rather than part with it for a cake, at least is not the slave of gross appetite; and shows besides a preference always to be esteemed, of the future to the present moment.”
—Samuel Johnson (1709–1784)