Financial Market Exposure Raises Support for Peace

Attention in conflict-afflicted societies is often focused on violence, ethnic animosities and territorial disputes, rather than the economic costs. Can exposure to financial markets, that align individuals’ risks and returns with those of the broader economy, also lead individuals to reevaluate the costs and benefits of conflict and peace initiatives? Can this happen even in the context of a persistent ethnic conflict, and even affect votes? Answering this question is extremely challenging in observational data given the selection processes by which individuals choose to hold and trade financial assets. In Jha and Shayo (2016), we present results from the first study to experimentally assign individuals financial assets, allow them to trade in those assets, and trace the effects on their political views and behavior. A month and a half prior to the highly contested 2015 Israeli elections, we randomly assigned 1,345 Jewish Israeli voters to either a financial asset treatment or a control group. Individuals in the asset treatment received endowments of assets that tracked the value of specific funds or company stocks from both Israel and the Palestinian Authority, or an endowment of cash they could invest in an asset that tracked the Tel Aviv 25 index. They were also given incentives to monitor the performance of their asset and to make weekly decisions to buy or sell part of their portfolio. We further randomized the dates at which individuals would be entirely divested of their portfolio to be either before or after the elections, and randomly assigned the initial value of the portfolio ($50 or $100). Individuals also participated in a series of social and political surveys. This allowed us to track not only their investment behavior but also their social and political views and, crucially, their voting decisions. Importantly, participants did not associate the political surveys with the financial study, thus mitigating potential social desirability biases. Figure 1 provides a timeline. ∗Emails:[email protected]; [email protected].