A ‘rational’ person, so went the assumption in economics, could have any aim in life, but, given that aim, he or she invariably chose the option that best furthered that aim. Over the years this assumption became part and parcel of mainstream economics. Predictions concerning economic life were deduced from this assumption and policy design was based on it. Every now and then some critic would remind us that the assumption was not robust. The reminders would be absent-mindedly acknowledged and promptly forgotten.

The last few years have, however, witnessed a dramatic change in this regard. It began with a set of trespassers into economics. Psychologists Daniel Kahneman, Amos Tversky, and others, through a series of laboratory experiments, showed that not only are human beings often irrational (as most of us already knew), but that they are systematically so. This has given rise to one of the most exciting areas of modern economic research, called ‘behavioural economics’. It is widely expected that this area of inquiry will, within the next few years, be recognized with an economics Nobel Prize being awarded to the pioneers of this field.

Suppose you have a ticket for a cricket match and someone comes up to you and asks the minimum price for which you will be willing to give up the ticket. Next, suppose you do not have a ticket for the match and someone comes to you with a ticket and asks for the maximum you will be willing to pay for it.