I have a nephew like this although he is 10 now. Apparently he is very well-behaved at school. As I (and others in the family see it) the problem has resulted due to a combination of the following:
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personality (not naturally easy-going in character anyway )
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parents letting him be boss in EVERYTHING as a toddler when DC2 was on the way and then when she was born, because they felt sorry for him being usurped and wanted to give him extra attention (their FULL attention, so that he didn't have to wait for them to finish doing their own task - whenever he wanted them to so something, they did it, whether it was convenient or not. (this was their biggest mistake, I feel, and used to drive me mad.)
3). Severe lack of chastisement as a toddler/pre-schooler. One time he threw metal hand trowel at DS's face really hard in temper - luckily he was a bad aim and missed but he could have caused serious damage. I would have REALLY shouted at him and put him on the naughty step if it had been me but she just sighed and said "oh dear, we don't do that, it's naughty" in a wishy washy voice, and let him carry on playing with it!!! I was gob smacked!
4). Buying him a (expensive) toy nearly every week for no good reason.
5). Parents Went the other way as he got older and realised he was becoming too spoiled and would shout far too loud for things that I would have let go or dealt with much more lightly. Ie they didn't pick their battles. They have the added problem of often disagreeing how to discipline him with one parent being too strict and one too soft and they have arguments about it in front of him.
6). Parents treat their DD very differently as she is a much easier personality, and sometimes I've cringed at how obvious it's been and how they don't display the same kind of affection towards their DS in public. If we notice it, he will, that's for sure. Resulted in resentment towards his sister.
7). Extremely inconsistent and unfirm boundaries. Mainly because it takes effort and they sometimes can't be bothered to follow through proper discipline. They are of the "I'll count to 3. 1.....2.......come on, get your shoes on....2 and a quarter....errrrr.....put your shoes on now! 2 and three quarters.....oh please, DD...." type of parents. Etc etc. I'm sure you've seen this in other parents. I am strict and would count a proper 1, 2, 3 and if no shoes on then pick said child up in one hand, shoes in the other and off out the house.
They also make stupid threats without thinking which they cannot possibly follow through, so become meaningless. Eg they might be on holiday, and say "if you don't do z, y or z then we're turning round and driving home." 
All of this has resulted in a poor, anxious, un confident kid who doesn't want to try new things, who gives his parents a hard time at home, who doesn't seem to have many friends at school, and who is VERY bossy and controlling when playing with his cousins.
It's not his fault. I feel sorry for him. He IS naturally challenging but how they've brought him up so far really hasn't helped at all.
I think they do realise they were far too lenient with him when he was younger, but once those patterns of behViour have been learned at an early age, it's quite difficult to un-learn them, and they're at a bit of a loss as to what to do now. And of course, it's a bit of a vicious circle because sometimes he is quite unpleasant to be around, and then it's quite difficult to be pleasant to HIM.
I don't know whether you recognise any of that in your own situation, OP, but I did just wonder whether it may be similar.
You've had some good advice so far.
As someone said, make sure the decisions and choices that you absolutely need to stick to ARE always stuck to. Eg if you need to be out the house in time for something eg school/train then he does not get any say in what time you choose to leave. But with things like what he wears to a party, let him decide, even if you think he looks a bit daft. Ie. don't sweat the small stuff.
If he tells you he wants to do something, if there is really no good reason why he shouldn't, then let him do it! I remember going on a walk with my DSs, and my nephew and his dad, and the boys were each kicking a little rock along a farm track. His dad told him not to do it, and didn't give him a reason why not, and so of course my nephew started to have a paddy because he thougt it was unfair, which it was. I pointed out that actually none of the kids were doing any harm kicking a stone along and I have permission for my boys to carry on! And that time, quite rightly, he changed his mind about letting his DS carry on kicking the stone. Had I not been there, though, I have no doubt that in my BIL's mind he would have thought that "backing down" would have shown weakness and would have stuck to his guns, resulting in an upset kid and an annoyed dad. And for absolutely no good reason!
Re: choice of activity: "ok, we're either going to the museum or the park, which do you want to do, DS? DD chose last time so your turn this time." And remember that it's DD's turn to choose next time it comes round and stick to that.
I'm going to shut up now . I'm waffling on and on and on......
