Revealed Preference

AAA

DEFINITION of 'Revealed Preference'

An economic theory of consumption behavior which asserts that the best way to measure consumer preferences is to observe their purchasing behavior. Revealed preference theory works on the assumption that consumers have considered a set of alternatives before making a purchasing decision. Thus, given that a consumer chooses one option out of the set, this option must be the preferred option.

INVESTOPEDIA EXPLAINS 'Revealed Preference'

Revealed preference theory was introduced by Paul Samuelson in 1938. Since then it has expanded upon by a number of economists and remains a major theory of consumption behavior. The theory is especially useful in providing a method for analyzing consumer choice empirically.

RELATED TERMS
  1. Consumer Discretionary

    A sector of the economy that consists of businesses that sell ...
  2. Time-Preference Theory Of Interest

    A theory that examines the nature of consumerism, and the factors ...
  3. Choice Market

    A market in which the spread between the bid and the ask for ...
  4. Intertemporal Choice

    An economic term describing how an individual's current decisions ...
  5. Preferred Habitat Theory

    A term structure theory suggesting that different bond investors ...
  6. Premium to Surplus Ratio

    Net premiums written divided by policyholders’ surplus. The premium ...
Related Articles
  1. Options & Futures

    Nobel Winners Are Economic Prizes

    Before you try to profit from their theories, you should learn about the creators themselves.
  2. Options & Futures

    Investors: Rely On Your Gut

    Find out how your personality and natural instincts can direct your investment choices.
  3. Mutual Funds & ETFs

    How To Pick A Good Mutual Fund

    Learn how to evaluate mutual funds and find the right one for you.
  4. Economics

    The History Of Economic Thought

    Economics is a vital part of every day life. Discover the major players who shaped its development.
  5. Economics

    How A Limited Government Affects A Country's Finances

    Countries with limited governments have fewer laws about what individuals and businesses can and can’t do. What's the net result?
  6. Economics

    Where is cost of living lowest in the world?

    Learn how the cost of living is the lowest in India based on numbers derived from the CPI and organizations like Expatistan and Numbeo.
  7. Investing Basics

    How Does Goodwill Affect Financial Statements?

    Goodwill is a bit of a paradox--intangible, yet it is recorded as an asset on the purchasing company's balance sheet.
  8. Investing Basics

    Using Normal Distribution Formula To Optimize Your Portfolio

    Normal or bell curve distribution can be used in portfolio theory to help portfolio managers maximize return and minimize risk.
  9. Investing Basics

    R-Squared

    Learn more about this statistical measurement used to represent movement between a security and its benchmark.
  10. Insurance

    The Government And Risk: A Love-Hate Relationship

    Though the U.S. government can help its citizens by subsidizing risky loans, the costs always come back to the taxpayers.

You May Also Like

Hot Definitions
  1. Christmas Island Dollar

    The former currency of Christmas Island, an Australian island in the Indian Ocean that was discovered on December 25, 1643. ...
  2. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  3. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  4. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  5. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  6. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
Trading Center