Abstract
The classic public choice theory has been very important explaining various political phenomena. Incorporating insights from behavioural economics, could improve the analysis of the shape and function of political institutions. Even if institutions are fundamental in the analysis of policy making they are often taken as given. Phenomena from behavioural economics such as self serving biases, loss aversion, encompassing sentiment coordination, status quo bias, endowment effect and framing can however provide an explanation for the shape of institutions. A common result of these phenomena on policy is path dependence which is consistent with institutional theory. In this paper, the foundations of such a behavioural model are outlined and some areas in the domain of tax and welfare policy where the model can be applied are suggested.