what is revealed preference 
revealed preference a theory offered by american economist paul anthony samuelson in 1938 states that consumer behavior if their income and the item s price are held constant is the best indicator of their preferences 1understanding revealed preferencefor a long time consumer behavior most notably consumer choice had been understood through the concept of utility in economics utility refers to how much satisfaction or pleasure consumers get from the purchase of a product service or experienced event however utility is incredibly difficult to quantify in indisputable terms and by the beginning of the 20th century economists were complaining about the pervasive reliance on utility replacement theories were considered but all were similarly criticized until samuelson s revealed preference theory which posited that consumer behavior was not based on utility but on observable behavior that relied on a small number of relatively uncontested assumptions revealed preference is an economic theory regarding an individual s consumption patterns 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 are rational in other words they will have considered a set of alternatives before making a purchasing decision that is best for them thus given that a consumer chooses one option out of the set this option must be the preferred option revealed preference theory allows room for the preferred option to change depending upon price and budgetary constraints by examining the preferred preference at each point of constraint a schedule can be created of a given population s preferred items under a varied schedule of pricing and budget constraints the theory states that given a consumer s budget they will select the same bundle of goods the preferred bundle as long as that bundle remains affordable it is only if the preferential bundle becomes unaffordable that they will switch to a less expensive less desirable bundle of goods the original intention of revealed preference theory was to expand upon the theory of marginal utility coined by jeremy bentham 2 utility or enjoyment from a good is very hard to quantify so samuelson set about looking for a way to do so since then revealed preference theory has been 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 1three axioms of revealed preferenceas economists developed the revealed preference theory they identified three primary axioms of revealed preference the weak axiom the strong axiom and the generalized axiom example of revealed preferenceas an example of the relationships expounded upon in revealed preference theory consider consumer x that purchases a pound of grapes it is assumed under revealed preference theory that consumer x prefers that pound of grapes above all other items that cost the same or are cheaper than that pound of grapes since consumer x prefers that pound of grapes over all other items they can afford they will only purchase something other than that pound of grapes if the pound of grapes becomes unaffordable if the pound of grapes becomes unaffordable consumer x will then move on to a less preferable substitute item criticisms of revealed preference theorysome economists say that revealed preference theory makes too many assumptions for instance how can we be sure that consumer s preferences remain constant over time isn t it possible that an action at a specific point in time reveals part of a consumer s preference scale just at that time for example if just an orange and an apple were available for purchase and the consumer chooses an apple then we can definitely say that the apple is revealed preferred to the orange there is no proof to back up the assumption that a preference remains unchanged from one point in time to another in the real world there are lots of alternative choices it is impossible to determine what product or set of products or behavioral options were turned down in preference to buying an apple 