Risking Peace: The Effects of Financial Market Exposure on Votes and Political Attitudes

Conflict tends to harm the economy, but voters may not fully internalize these risks. Can exposure to broader financial markets change attitudes towards conflict, and even voting decisions? Can this happen even in the context of persistent ethnic conflict? Prior to the 2015 Israeli elections, we randomly assigned financial assets to likely voters and gave them incentives to actively trade for up to seven weeks. These assets included stocks of Israeli and Palestinian companies with randomly assigned divestment dates and initial endowments. We find that this financial market exposure caused systematic shifts in voting behavior and support for policy concessions to achieve peace. There is little evidence that the effects reflect changes in voters’ political information, overall wealth, or changes in well-being. Instead, we find evidence consistent with financial market exposure changing both individuals’ evaluation of the risks to the broader economy due to peace and conflict, and their evaluation of national policy platforms. Importantly, these effects are larger for the risk averse, who otherwise tend to support status quo policies, and for inexperienced investors. In fact, the votes of inexperienced investors become more aligned with experienced investors that already support platforms favoring concessions for peace. ∗Emails:[email protected]; [email protected]. We are particularly grateful to Kate Casey, Jim Fearon, Avner Greif, Nir Halevy, Ori Heffetz, Keith Krehbiel, Jessica Leino, Neil Malhotra, Joram Mayshar, Huggy Rao, Ken Singleton, the Stanford GSB political economy group, the GSB’s CIRCLE team and seminar participants at Bocconi, Harvard, Hebrew University, IPES, the Chapman-Irvine Religion and Culture conference, NYU, LSE, Stockholm and UCSD for valuable suggestions, and to an I-Award from the Stanford Institute for Entrepreneurship in Developing Economies (SEED) for financial support. Shayo gratefully acknowledges support from the European Union, ERC Starting Grant project no. 336659. Gurpal Sran and Ohad Dan provided much valued research assistance.