Revealed Preference

Revealed preference theory holds that consumers’ preferences can be revealed by what they purchase under different circumstances, particularly under different income and price circumstances. According to this concept, if a consumer purchases a specific bundle of goods, then that bundle is “revealed preferred,” given constant income and prices, to any other bundle that the consumer could afford. By varying income and/or prices, an observer can infer a representative model of the consumer’s preferences.

Much of the explanation for consumer behavior, particularly consumer choice, is rooted in Jeremy Bentham’s concept of utility. Utility represents want-satisfaction, which implies that it is subjective, individualized, and difficult to quantify. By the early 20th century, substantial problems with the use of utility had been identified, and many of the theoretical replacements ...