Revealed preference
Topic: Consumer Behaviour, Demand and Elasticity · NCERT: Beyond NCERT
Meaning
The revealed preference theory (Paul Samuelson, 1938) works out a consumer's preferences from what she actually buys. It does not ask her about utility or satisfaction. If she chooses bundle A when bundle B was also affordable, then A is "revealed preferred" to B. This keeps demand theory tied to choices we can observe in the market, not to feelings in the mind.
Example
A household with ₹500 can afford either 5 kg of rice and 2 kg of dal, or 4 kg of rice and 3 kg of dal. It buys the second bundle. So 4 kg rice + 3 kg dal is revealed preferred to 5 kg rice + 2 kg dal.
Don't confuse with
- Ordinal utility analysis: it assumes the consumer can rank bundles and draws indifference curves from those rankings. Revealed preference reads the ranking from actual purchases.
Related concepts
- Ordinal utility analysis
- Indifference curve
- Marginal rate of substitution
- Law of diminishing marginal rate of substitution
- Convexity of indifference curve
- Perfect substitutes
- Monotonic preferences
- Indifference map
- Properties of indifference curves
- Utility function