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

Political polarization and lack of trust can greatly hamper the implementation of beneficial policies and broader economic development. Thus it is crucial to understand how to build trust, especially in polarized societies. We argue that carefully-designed exposure to trade in broad financial markets can increase generalized trust because it can expose 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 hold or trade stocks for up to seven weeks, we show that participation in financial markets increased generalized trust by 5.9pp, equivalent to 25% of the control group mean. Our main results are larger among political partisans, robust to negative price changes, and unrelated to changes in political preferences. We argue that trust-building through financial markets resembles a process of learning by doing, emphasizing the promise of financial innovations in facilitating trust in polarized societies