The Impact of Behavioral Factors and War on Decision Making under Political Conflict: Evidence from Palestine

Abstract

The purpose of this study is to investigate the impact of behavioral factors and war on decision making under political conflict. We consider the impact of irrational factors (overconfidence, optimism, pessimism), and war on decision making in such unique case. Investigating the period 2008 to 2016, covering 2,185 stock-day observations, we find that all factors, excluding overconfidence, experience a significant impact on decision making. More specifically, optimism significantly increases the volume of trade (as a proxy for decision making), whereas, pessimism and war have significant adverse effects on the variation of financial markets under political conflict.

Keywords: Decision making; overconfidence; optimism; pessimism; war; political conflict.