Revealed Preference

A person's (usually marginal) willingness to pay for an entity as revealed by (for example) market transactions or a controlled experiment. The emphasis is on the preference being revealed through behaviour in the form of a real act of choice or a hypothetical one rather than mere introspection. The theory of revealed preference is a branch of utility theory in which either one entity is preferred to another or the other is preferred to the one or, in some versions, neither is preferred to the other: 'indifference'. It is concerned less with questions about whether choices actually do reveal preferences (sometimes this is taken axiomatically to be the case) than with building a logical structure of consistent axioms for choice theory and one that yields the implication that an individual's demand curve will have a negative slope. Cf. Indifference Curve. See Conjoint Analysis for an experimental version of revealed preference that has become used in health economics to evaluate the quality of health services.

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