Revealed Preference

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.

BREAKING DOWN '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.

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