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Choice under risk has a large stochastic (unpredictable) component. This chapter examines five stochastic models for binary discrete choice under risk and how they combine with “structural” theories of choice under risk. Stochastic models are substantive theoretical hypotheses that are frequently testable in and of themselves, and also identifying restrictions for hypothesis tests, estimation and prediction. Econometric comparisons suggest that for the purpose of prediction (as opposed to explanation), choices of stochastic models may be far more consequential than choices of structures such as expected utility or rank-dependent utility.

We review the experimental evidence on risk aversion in controlled laboratory settings. We review the strengths and weaknesses of alternative elicitation procedures, the strengths and weaknesses of alternative estimation procedures, and finally the effect of controlling for risk attitudes on inferences in experiments.

Through the application of Hirst’s “forms of knowledge” theory, it is shown that the Shakers’ nineteenth century management principles had many similarities to Deming’s tenets. For example, Shakers were committed to perfection in work, taking their time in pursuit of quality. Training was accomplished through sharing community expertise, apprenticing, and rotating jobs. Also, equality and cooperation were encouraged among the “brothers” and “sisters.” This example of management history research provides a baseline from which management concepts can be understood and potential mistakes avoided.