The Preference Revelation Problem

The preference revelation problem is the problem government has in determining the preferences of individuals. Preferences are usually discovered either by survey or by revealed preference. Markets obtain revealed preference information more easily and in a relatively less costly fashion. Information derived from revealed preference is ideal as it is less subject to bias and error than other sources.

Revealed preference is when values are implied by action. If a person makes a voluntary purchase then it is logically implied that the value of the good from their perspective is greater than or equal to the price of the good, or else they would not have engaged in such activity.

Centralized structures including government policy-making bodies may obtain limited revealed preference information, but it is relatively more costly and time consuming to do so. As a result, these groups often use survey information. Such information is less accurate. Finally, when central bodies obtain information they often process that information less efficiently due to a relative lack of appropriate expertise in combination with a secondary personal, political interest which can detract from the ability to find the objectively optimal solution.

In conclusion, markets obtain more accurate information more easily than central structures, then they also proceed to process that information more efficiently in order to produce the most ideal result more often, and finally they move on to implement that decision most efficiently. The relative inefficiency of government in obtaining such information is referred to as the preference revelation problem.