This article reviews recent developments in the economic theory of individual decision making under risk. Since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways. Considerable research effort has now been devoted to the project of developing a superior descriptive model. Following an overview of non-expected utility theories which distinguishes between “conventional” and “non-conventional” approaches, the paper seeks to assess these alternative models in terms of empirical success (using laboratory and field data) and theoretical usefulness. The closing sections reflect on some new directions emerging in this literature.

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This article reports experimental tests of two alternative explanations of how players use focal points to select equilibria in one-shot coordination games. Cognitive hierarchy theory explains coordination as the result of common beliefs about playersÕ pre-reflective inclinations towards the relevant strategies; the theory of team reasoning explains it as the result of the playersÕ using a non-standard form of reasoning. We report two experiments. One finds strong support for team reasoning; the other supports cognitive hierarchy theory. In the light of additional questionnaire evidence, we conclude that playersÕ reasoning is sensitive to the decision context.

Understanding the nature and influence of social relationships is of increasing interest to behavioral economists, and behavioral scientists more generally. In turn, this creates a need for tractable, and reliable, tools for measuring fundamental aspects of social relationships. We provide a comprehensive evaluation of the 'Inclusion of the Other in the Self' (IOS) Scale, a handy pictorial tool for measuring the subjectively perceived closeness of a relationship. The tool is highly portable, very easy for subjects to understand and takes less than 1 minute to administer. Across our three online studies with a diverse adult population (n = 772) we show that six different scales designed to measure relationship closeness are all highly significantly positively correlated with the IOS Scale. We then conduct a Principal Component Analysis to construct an Index of Relationship Closeness and find that it correlates very strongly (ρ = 85) with the IOS Scale. We conclude that the IOS Scale is a psychologically meaningful and highly reliable measure of the subjective closeness of relationships.

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