Revealed preference theory
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- Work cat.: Wong, S. The foundations of Paul Samuelson's revealed preference theory, 2006.
- Herriges, J. Revealed preference approaches to environmental valuation, 2008.
- Wikipedia, Dec. 22, 2010(Revealed preference. Revealed preference theory, pioneered by American economist Paul Samuelson, is a method by which it is possible to discern the best possible option on the basis of consumer behavior. Essentially, this means that the preferences of consumers can be revealed by their purchasing habits. Revealed preference theory came about because the theories of consumer demand were based on a diminishing marginal rate of substitution (MRS). This diminishing MRS is based on the assumption that consumers make consumption decisions based on their intent to maximize their utility. While utility maximization was not a controversial assumption, the underlying utility functions could not be measured with great certainty.)
- Black, J. A dictionary of economics, 2009(Revealed preference. Information about preferences revealed by economic choices. As prices and income change a consumer will make different choices. The observed choices can be used to construct a preference order for the consumer. Consider three bundles of goods, A, B, ...)
Wikipedia description:
Revealed preference theory, pioneered by economist Paul Anthony Samuelson in 1938, is a method of analyzing choices made by individuals, mostly used for comparing the influence of policies on consumer behavior. Revealed preference models assume that the preferences of consumers can be revealed by their purchasing habits. Revealed preference theory arose 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 maximise their utility. While utility maximisation 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 behaviour. Therefore, revealed preference is a way to infer preferences between available choices. It contrasts with attempts to directly measure preferences or utility, for example through stated preferences.
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