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Financial Market Exposure Increases Generalized Trust, Particularly Among the Politically Polarized

work, Entrepreneurship, and finance

Generalized trust is essential for supporting the functioning of modern societies, yet many countries experience limited trust. Given the social, economic, and political benefits of trust, it is crucial to understand how to increase generalized trust, especially in polarized societies. We argue that exposure to opportunities to trade in broad financial markets can increase generalized trust because it exposes investors to shared risks and returns that highlight the benefits of large-scale economic cooperation. Reporting results from a randomized controlled trial in which we encouraged Israelis to trade stocks for up to seven weeks, we show that participation in financial markets increased generalized trust by 5.9pp. This effect is more salient among political partisans and male respondents. Moreover, the effect is stronger among successful investors and robust to negative price changes. Our findings highlight the promise of financial innovations in facilitating trust in polarized societies.

wp2034.pdf (1.38 MB)
Saumitra Jha
Moses Shayo
Chagai M. Weiss
Publication Date
March, 2023