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:
“How many young hearts have revealed the fact that what they had been trained to imagine the highest earthly felicity was but the beginning of care, disappointment, and sorrow, and often led to the extremity of mental and physical suffering.”
—Catherine E. Beecher (1800–1878)
“Moral choices do not depend on personal preference and private decision but on right reason and, I would add, divine order.”
—Basil Hume (b. 1923)