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Demonstrated preference is a concept in economics that states that people's spending (time/money) decisions reveal their true values. Unlike revealed preference, it does not assume that people's preferences are constant or fixed over time.
Statement of the theory
- The theory of demonstrated preference was proposed by economist Murray Rothbard It states that an individual's choice demonstrates his or her preferences; that is, such preferences may be inferred from the choice entailed by the observed action. Thus, if a person chooses to spend an hour at a concert rather than a movie, one may infer that the former was preferred, or ranked higher on the individual's value scale. Similarly, if a person spends five dollars on a shirt we deduce that he preferred purchasing the shirt to any other uses that person could have found for the money. This concept of preference, rooted in real choices, forms the keystone of the logical structure of economic analysis, and particularly of utility and welfare analysis.
See also
- Actions speak louder than words
- Choice modelling
- Contingent valuation or stated preference methods
- Dollar voting
- Have one's cake and eat it too
- Opportunity cost
- Other people's money
- Partial knowledge
- Parable of the broken window
- Put your money where your mouth is
- Scarcity
- Tax choice
- There Ain't No Such Thing As A Free Lunch
- Time management
- Trade-off