Behavioral economics has previously been proven to affect how individuals act and make decisions regarding their own health and economics. This master’s thesis focuses on the use of behavioral economic theory, design and application in a political context. The study looks at how political representatives in Swedish Municipal Councils make their decisions based on the information that they have available. The aim of the thesis is to shed new light on the use of behavioral theory in a political context, with a primary focus on alternative cost neglect and a secondary focus on the public sector in general. Among several municipalities, politicians are asking for a more systematic use of alternative costs in decision support documents.

The study was planned and carried out using experimental design and was conducted in six different municipalities, focusing on alternative cost in decision support document. The main findings show that those politicians who were not exposed to the suggestion of alternative costs stated they would vote yes 23 percent more often the those who were exposed to the alternative cost. Furthermore, those who were exposed to an alternative cost found the initial investment to be16,6 percent more expensive compared to the control group who did not have a stated alternative investment. Finally, those who were exposed to the suggestion of alternative costs found the decision to be 12 percent harder to make, when reminded of the alternative cost. The analysis concludes that politicians in municipalities perceive investments as being more expensive and the decisions harder to take when they are presented with the alternative costs.

Furthermore, the study suggests that loss aversion is a significant reason for an all too incremental municipality budgeting process, with the potential to lead to a substantial miss-match in funding and sub-optimal use scarce resources.