An Introspection of Luxury Auto Sales Using Revealed Preference Theory

Abstract

Revealed preference is a powerful tool within the realm of consumer theory and behavioral economics used to determine consumer proclivity towards goods and services which maximize their individual utilities in scenarios where the alternatives would have only suppressed utility, first coined by American economist Paul Samuelson in 1938. The consumer then prefers the good or service from which this maximation stems. Using a cross-sectional dataset from Carvana Co. on used automobile sales from January to September 2022, this study uses the Weak Axiom of Revealed Preference (WARP) and binary relation to show consumer preference amongst three bundles (brands and prices). All examined brands were compared in the quantity of units moved across sixty identical price points, so price is considered a controlled variable for the terms of this research. We then represent our finding graphically and in terms of WARP as well as construct an ordinal utility function to prove maximization is achieved amongst the examined brands.