Using Budget Pies to Reveal Preferences: Validation of a Survey Instrument

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Abstract
Why use a budget pie? A classic problem faccs everyone who is curious about the perferences of at least one other individual: How can some simple questions lead us to accurately know about another’s preferences? Husbands and wives sometimes face this problem when they are trying to find out where the other would like to vacation, what type of Christmas present the other would like, and so on. Some spouses try to hide their own prefercnces, deferring instead to the preferences of the other. Some married couples end up doing something neither partner prefers, both of them believing they are doing the thing the other most wants. In the market-place, the entrepreneur faces the problem of ascertaining what his customers prefer. A misjudgement on his part will result in a loss of sales and profit. Continued difficulty in determining others’ prefcrences will result in business failure. But a private entrepreneur does have some information to go on. As private consumers purchase goods, they reveal their preferences for certain goods at one price over other goods at other prices. In the short run, quid pro quo relationships reveal much about the preferences of buyers for the goods and services they are currently offered.

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