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We study ingroup bias—the preferential treatment of members of one's group—in naturally occurring data, where economically significant allocation decisions are made under a strong non-discriminatory norm. Data come from Israeli small claims courts during 2000—2004, where the assignment of a case to an Arab or Jewish judge is effectively random. We find robust evidence for judicial ingroup bias. Furthermore, this bias is strongly associated with terrorism intensity in the vicinity of the court in the year preceding the ruling. The results are consistent with theory and lab evidence according to which salience of group membership enhances social identification.

When do ethnic cleavages increase the risk of conflict? Under what conditions is a strong common identity likely to emerge, thereby reducing that risk? How are patterns of social identification shaped by conflict? We draw on empirical results regarding the nature and determinants of group identification to develop a simple model that addresses these questions. The model highlights the possibility of vicious and virtuous cycles where conflict and identification patterns reinforce each other. It also shows how processes of ethnic identification amplify the importance of political institutions and traces the effects of national status and perceived differences across ethnic groups. Finally, we demonstrate how a small but sufficiently potent group of ethnic radicals can derail a peaceful equilibrium, leading to the polarization of the entire population. We reexamine several historical cases as well as empirical correlates of civil wars in light of these results.

Can participation in financial markets lead individuals to reevaluate the costs of conflict, change their political attitudes, and even their votes? Prior to the 2015 Israeli elections, we randomly assigned Palestinian and Israeli financial assets to likely voters and incentivized them to actively trade for up to 7 weeks. No political messages or nonfinancial information were included. The treatment systematically shifted vote choices toward parties more supportive of the peace process. This effect is not due to a direct material incentive to vote a particular way. Rather, the treatment reduces opposition to concessions for peace and changes awareness of the broader economic risks of conflict. While participants who were assigned Palestinian assets are more likely to associate their assets' performance with peace, they are less engaged in the experiment. Combined with the superior performance of Israeli stocks during the study period, the ultimate effects of Israeli and Palestinian assets are similar.

This article develops a model for analyzing social identity and applies it to the political economy of income redistribution, focusing on class and national identities. The model attempts to distill major findings in social psychology into a parsimonious statement of what it means to identify with a group and what factors determine the groups with whom people identify. It then proposes an equilibrium concept where both identities and behavior are endogenously determined. Applying this model to redistribution helps explain three empirical patterns in modern democracies. First, national identification is more common among the poor than among the rich. Second, national identification tends to reduce support for redistribution. Third, across democracies there is a strong negative relationship between the prevalence of national identification and the level of redistribution. The model further points to national eminence, national threats, and diversity within the lower class as factors that can reduce redistribution.

Current U.S. practice in Afghanistan may reify social divisions, which undermines institutions critical to postwar stability. America's power preponderance since the end of the Cold War has not translated into an ability to win quickly and decisively against insurgency. The U.S. military, designed to fight Soviet tanks on European battlefields, for the past decade has fought insurgents wearing flip-flops and using improvised explosives in Iraq and Afghanistan. Clear victories in counterinsurgency are rare, and these wars are costly ( 1 ) and long-lasting (table S1). Peace after civil wars, of which insurgencies are a subtype, is tenuous.

How does engagement with markets affect socioeconomic values and political preferences? A long line of thinkers has debated the nature and direction of such effects, hut claims are difficult to assess empirically because market engagement is endogenous. We designed a large field experiment to evaluate the impact of financial marketsy which have grown dramatically in recent decades. Participants from a national sample in England received substantial sums they could invest over a 6-week period. We assigned them into several treatments designed to distinguish between different theoretical channels of influence. Results show that investment in stocks led to a more right-leaning outlook on issues such as merit and deservingness, personal responsibility, and equality. Subjects also shifted to the right on policy questions. These results appear to be driven by growing familiarity with, and decreasing distrust of markets. The spread of financial markets thus has important and underappreciated political ramifications.

How persistent are the effects of conflict on bias toward co-ethnics? What are the channels of persistence? We employ a measure of ethnic bias derived from decisions made by Israeli Arab and Jewish judges to study the levels and determinants of bias during the 2000–2004 conflict and its aftermath (2007–2010). Despite the fall in violence, we find no evidence of a general attenuation in bias. Furthermore, bias remains positively associated with past intensity of violence in different localities. This persistence does not appear to be due to judges' personal exposure to violence but rather to different dynamics in afflicted areas. (JEL D74, J15, K41)

Elementary consumer theory assumes prices affect demand only because they affect the budget constraint (BC). Alternative models, and some evidence, suggest prices can affect demand through other, non-BC channels (e.g., by signaling quality). This paper uses a lab and a field experiment to disentangle BC from non-BC effects of prices on demand. In the lab, we find that although prices positively affect stated willingness to pay, non-BC price elasticities are considerably smaller than BC price elasticities, are often statistically insignificant, and do not increase with product uncertainty. We do not detect any non-BC effects in our field experiment.

Are identities fungible? How do people come to identify with specific groups? This paper proposes a revealed preference approach, using food consumption to uncover identity choices. We focus on ethnic and religious identities in India. We first show that consumption of identity goods (e.g. beef and pork) responds systematically to forces suggested by social identity research: group status and group salience, with the latter proxied by Hindu-Muslim violence. Moreover, identity choices respond to the market cost of following the group's prescribed behaviors. We propose and estimate an appropriately modified demand system. Using these estimates, we quantify the identity changes that followed India's1991economic reforms, and estimate the relative importance of the forces above in shaping identities. While conflict and status have been at the focus of social identity research in recent decades, our results indicate that costs play a dominant role.

How persistent are the effects of ethnic conflict on ethnic bias? Addressing this question is crucial for understanding the evolution of intergroup norms and the recurrence of conflict. Shayo and Zussman (2011) use decisions made by Arab and Jewish judges in Israel during a period of intense ethnic conflict (2000-04) to establish that exposure to violence increases ethnic bias. This paper examines the evolution of bias in subsequent, relatively tranquil, years. Despite a sharp drop in violence, we find no evidence of attenuation in bias. Furthermore, bias in the later period remains positively associated with local exposure to violence during the conflict. However, this association weakens compared to the conflict period, suggesting a convergence toward a relatively high level of judicial bias in the post-conflict years.