Valuing Peace: the Effects of Financial Market Exposure on Votes and Political Attitudes

Abstract: Financial markets expose individuals to the risks and returns of the broader economy. Can they also lead to a reevaluation of the costs and benefits of conflict and peace initiatives? Can this happen even in the context of persistent ethnic conflict, and even affect voting decisions? 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. The assets included stocks of Israeli and Palestinian companies. We also randomly assigned their initial amounts and divestment dates. We find that the exposure to stocks caused systematic shifts in voting behavior and increased support for peace initiatives. These shifts appear to reflect two main channels. First, financial market exposure leads individuals to follow financial markets over time and to positively reevaluate the effects of potential peace initiatives on the national economy. Second, exposure to Palestinian stocks increases out-group empathy, reflected in higher support for inter-ethnic social integration. The effects of financial market exposure are larger for the risk averse and for inexperienced investors, who become more like experienced investors in favoring concessions for peace.