This book has been written and organized especially for readers who do not want to read all of its contents, but want to skip parts and select the material of their own interest. This has been achieved by an organization of exercises explained later, and by an Appendix K that describes the interdependencies between sections. Because of this organization, this book can be used by readers with different backgrounds.

We will examine theories of individual decision making under uncertainty. Many of our decisions are made without complete information about all relevant aspects. This happens for instance if we want to gamble on a horse race and have to decide which horse to bet on, or if we are in a casino and have to decide how to play roulette, if at all. Then we are uncertain about which horse will win or how the roulette wheel will be spun. More serious examples include investments, insurance, the uncertain results of medical treatments, and the next move of your opponent in a conflict. In financial crises, catastrophes can result from the irrational attitudes of individuals and institutions towards risks and uncertainties.

Two central theories in this book are expected utility theory and prospect theory. For all theories considered, we will present ways to empirically test their validity and their properties. In many applications we require more than just qualitative information.