Revealed Preference

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 PreferenceDefinitions and Theory, Motivation, Criticism

Other articles related to "revealed preference, preference, revealed":

Ordinal Utility - Revealed Preference
... 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 choosing particular ...
Revealed Preference - Criticism
... 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 of the two theories as a vindication for ... orange 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:

    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)

    I don’t like people who have never fallen or stumbled. Their virtue is lifeless and it isn’t of much value. Life hasn’t revealed its beauty to them.
    Boris Pasternak (1890–1960)