Revealed preference

Revealed preference theory, pioneered by economist <a href="/facts/Paul_Samuelson/dIU1hb4B">Paul Anthony Samuelson</a> in 1938, is a method of analyzing choices made by individuals, mostly used for comparing the influence of policies on <a href="/facts/Consumer_behavior/6dly1pUV">consumer behavior</a>. Revealed preference models assume that the <a href="/facts/Preference_(economics)/4h4tND8S">preferences</a> of consumers can be revealed by their purchasing habits.
Revealed preference theory arose because existing theories of consumer <a href="/facts/Demand/mtb1m6F0">demand</a> were based on a diminishing <a href="/facts/Marginal_rate_of_substitution/p7wmHafm">marginal rate of substitution</a> (MRS). This diminishing MRS relied on the assumption that consumers make consumption decisions to maximise their <a href="/facts/Utility/wlMDG74L">utility</a>. While utility maximisation was not a controversial assumption, the <a href="/facts/Consumer_theory/Yrpoc6fI">underlying utility functions</a> 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 the preferences of individuals given the observed choices. It contrasts with attempts to directly measure preferences or utility, for example through stated preferences. Taking economics to be an empirical subject, there is the issue that one cannot observe preferences.

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Revealed preference