Investor Psychology Under Geopolitical Conflict: Evidence from the 2026 Iran–Israel–USA War

When a sudden crisis shakes the world, from a natural disaster to a geopolitical conflict, the financial markets react instantly. But while the numbers on a screen change in seconds, the human mind takes longer to process the shock. This is the territory of behavioral finance, a field that studies how emotions, fears, and mental shortcuts influence the way people make money decisions. Unlike the cold logic of traditional economics, which assumes investors always act rationally, behavioral finance recognizes that people are often driven by anxiety, the fear of losing what they have, and a tendency to overreact to bad news. Understanding this is crucial because when millions of individual investors panic at the same time, their collective actions can deepen a market crash, turning a temporary dip into a long-term crisis. The question researchers ask is not just whether people get scared, but how that fear actually changes what they do with their savings.

In early 2026, a new conflict erupted between Iran, Israel, and the United States, sending energy prices soaring and creating a wave of uncertainty across global markets. To understand how ordinary people navigated this turbulence, a researcher at Aligarh Muslim University conducted a study focusing on retail investors—everyday individuals who buy and sell stocks for their own accounts, rather than large financial institutions. The study did not try to prove that the war caused specific psychological changes, nor did it claim to diagnose mental health conditions. Instead, it aimed to listen to the stories of 53 investors who volunteered to share their experiences during the first few weeks of the fighting. By combining personal interviews with standardized questionnaires, the researcher built a picture of how financial anxiety and investment behavior intertwined during a time of high stress.

The participants were a group of active investors, mostly in their mid-thirties, with an average of nearly seven years of experience in the market. During the conflict, they reported seeing their portfolios drop by an average of about one-third. To measure their state of mind, the researcher asked them to complete a series of surveys. These included adapted questions designed to gauge feelings of worry and sadness, a scale to measure how much they feared financial instability, and a tool to track how often they acted on impulse, such as selling stocks too quickly or checking their accounts obsessively. The results showed a clear pattern: the higher an investor's reported anxiety about their financial future, the more likely they were to exhibit impulsive or reactive behaviors in their trading.

The interviews revealed that this anxiety was not just about the money itself, but about a deeper sense of vulnerability. Many participants described feeling that their entire financial plan was unraveling, not just their current stock holdings. For some, this fear manifested as a physical sensation, a constant tension in their bodies whenever the news broke about a new escalation. This emotional state often led to a specific behavior: an inability to stop checking their investment accounts. One participant described checking their portfolio again and again, even knowing it was not helping, while others admitted to making decisions they later regretted, such as selling assets too early because the fear of losing more became unbearable.

However, the story was not the same for everyone. The study highlighted a significant divide in how people responded. While many felt overwhelmed, others managed to stay calm. Some investors described consciously limiting their news consumption or restricting themselves to checking their accounts only once a day to protect their peace of mind. These individuals often had a clearer sense of control or a longer-term perspective that helped them view the market drop as a temporary correction rather than a permanent disaster. The research found that these calmer responses were more common among those with larger portfolios and older investors, suggesting that experience and financial cushion might act as a buffer against panic, though the study could not prove that age or wealth directly caused the calmness.

The researcher also noted that the stress of the market did not stay confined to the trading app. For several participants, the worry spilled over into their daily lives, affecting their ability to focus at work or causing tension in conversations with family members. This "spillover" effect showed that for many, the conflict was not just a financial event but a personal one that disrupted their sense of security. Yet, even in these difficult moments, some investors reported a shift in how they saw themselves. Instead of feeling like a victim of the market, some described becoming more careful and disciplined, viewing the crisis as a lesson that would make them better investors in the long run.

Crucially, the study makes it clear that these findings are a snapshot of a specific group of people during a specific time. The researcher did not claim that the war caused the anxiety, nor did they prove that anxiety caused the trading behavior. Because the data was collected after the conflict had already begun, it is impossible to know for sure what these investors were feeling before the fighting started. The study also relied on people's own reports of their feelings and actions, which can be imperfect. The group of 53 volunteers was also self-selected, meaning they were likely people who felt strongly enough about the topic to participate, which may not represent the average investor.

Despite these limitations, the study offers a valuable glimpse into the human side of a financial crisis. It suggests that during times of extreme uncertainty, financial anxiety and impulsive behavior often travel together, but they do not affect everyone in the same way. The research underscores that while fear can drive people to make hasty decisions, it does not have to. Some investors found ways to regulate their emotions and stick to their plans, while others were swept up in the turbulence. The ultimate takeaway is that in the face of global conflict, the market is not just a place of numbers, but a reflection of human psychology, where the ability to manage fear can be just as important as the ability to pick the right stocks.