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.
Other articles related to "revealed preference, preference, revealed":
... Revealed preference theory addresses the problem of how to observe ordinal preference relations in the real world ... The challenge of revealed preference theory lies in part in determining what goods bundles were foregone, on the basis of the being less liked, when individuals are observed ...
... Stanley Wong argued that revealed preference theory was a failed research program ... According to Wong, in 1938 Samuelson presented revealed preference theory as an alternative to utility theory, while in 1950, Samuelson took the demonstrated equivalence ... is picked, then one can definitely say that an orange is revealed preferred to an apple ...
Famous quotes containing the words preference and/or revealed:
“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 (17781830)
“It is at the same time by poetry and through poetry, by and through music, that the soul glimpses the splendors found behind the tomb; and when an exquisite poem brings tears to ones eyes, these tears are not the sign of excessive pleasure, they are rather witness to an irritated melancholy, to a condition of nerves, to a nature exiled to imperfection and which would like to seize immediately, on this very earth, a revealed paradise.”
—Charles Baudelaire (18211867)