Understanding Micro-Level Budgeting Behavior: How Cognitive Biases Shape Politicians' Budget Preferences

Abstract

Decades of research emphasized collective behaviors in public budgeting, yet individual budget preferences remain underexplored. This paper argues that both well-known and lesser-known cognitive biases distort politicians' budget judgment, resulting in biased preferences. To test this, we conducted five preregistered experiments examining the impact of five biases—anchoring, herding, mental accounting, availability bias, and loss aversion—on budget preferences. Using data from 1825 municipal budgeters in The Netherlands, we reveal significant effects of anchoring, adherence to irrelevant budget labels (mental accounting), and overspending on items that attract media attention (availability bias) or emphasize gains (loss aversion). We also find that presenting decision information through infographics holds potential for improving judgment and mitigating biases in preferences. These findings challenge the view that budgeting is purely political, highlighting the role of cognitive factors in suboptimal budget decisions. We emphasize the need for further research into biases and debiasing mechanisms to advance budget decision-making.