Study shows Congressional stock gains come at democracy’s expense

A new study suggests that when Americans learn about members of Congress profiting from stock trading, their trust in Congress falls—and so does their willingness to comply with the laws that Congress passes. Researchers found that people who read about Congressional stock trades rated Congress as less legitimate, believed its laws were less fair, and were less inclined to follow them. These effects appeared to stem not from the size of the profits themselves, but from a broader sense that such behavior signaled corruption.

The findings were published in the Proceedings of the National Academy of Sciences by Raihan Alam and Tage S. Rai of the Rady School of Management at the University of California, San Diego. Their research aimed to understand how financial self-interest among lawmakers influences public perceptions of legitimacy—a concept central to how democratic institutions function.

Insider trading generally refers to the use of non-public information to gain an advantage in the stock market. Although members of Congress are not exempt from insider trading laws, they are allowed to trade stocks while in office, provided they disclose their transactions. Critics argue that this creates an appearance of impropriety, especially when lawmakers buy or sell stocks in industries they oversee.

In recent years, watchdog groups such as Unusual Whales have documented cases where lawmakers earned unusually high returns from stock trading. These reports have sparked public backlash and calls for stricter rules, including bipartisan proposals to ban stock trading by members of Congress. But while the political debate continues, researchers have only begun to explore how these revelations affect public attitudes toward democratic institutions.

“For about a year, I was working on a project with my advisor, Dr. Tage Rai, on what happens to cooperative behavior when punishment becomes incentivized or profitable,” explained Alam, a PhD student in Management and National Science Foundation Graduate Research Fellow.

“Our idea was that when authorities can materially benefit from engaging in punishment, people will become less willing to engage in cooperative behavior because they can no longer trust/predict that good cooperative behavior will be rewarded and bad selfish behavior will be punished, and further, if authorities start to signal selfishness, then it becomes unclear to everyone whether they’re even supposed to cooperate in the first place, or whether they should be selfish too.

“As I was working on this project, Unusual Whales had released their annual report on stock profiteering by members of Congress,” Alam continued. “I read the report in January and it made me wonder if a similar thing was going on. Specifically, if members of Congress are behaving in corrupt ways, the general public might view them as less legitimate and might become less willing to follow their laws.”

To explore these questions, Alam and Rai conducted two preregistered experiments using online samples of U.S. adults recruited in January 2025.

In the first experiment, 506 participants were randomly assigned to read one of two reports. One report described the educational backgrounds of members of Congress. The other described a recent analysis by Unusual Whales showing that some lawmakers earned stock market returns exceeding 100% in 2024—far surpassing the performance of the S&P 500. The report also noted that these trades occurred in industries that members of Congress help regulate.

After reading the assigned report, participants answered questions about how much they trusted Congress, how corrupt they believed it was, and how legitimate they thought it was as a governing body. They also rated how fair they believed Congressional laws were, whether they thought the laws served the public or benefited lawmakers, and how willing they were to comply with those laws.

To determine whether these effects were specific to financial gain, a second experiment introduced an additional twist. In this follow-up study, 664 participants read about a fictional Congressman who either made a large profit from stock trades, lost a large amount of money, or was simply described as serving on committees with no mention of stock trading. This allowed the researchers to isolate the effects of stock trading itself—regardless of whether it was profitable.

In the first experiment, participants who read about Congressional stock trading viewed Congress as less trustworthy, more corrupt, and less legitimate than those who read about lawmakers’ educational backgrounds. They also rated Congressional laws as less fair and more self-serving, and reported less willingness to follow them.

Importantly, these effects were statistically significant across all measures. For example, perceptions of trustworthiness, corruption, and legitimacy all differed by about three-quarters of a point on a 7-point scale between the trading and control groups. These differences may seem small, but in social science research, they represent meaningful shifts in opinion.

The researchers also conducted additional analyses to understand why these effects occurred. They found that perceptions of legitimacy played a central role. In other words, learning about stock trading did not simply lead people to reject specific laws—it led them to question whether Congress as an institution had the right to make laws in the first place. This loss of legitimacy explained much of the drop in willingness to comply.

The second experiment supported these conclusions. Whether the fictional Congressman gained or lost money from his trades, participants who learned about the trades rated him as more corrupt and less legitimate than those in the control condition. These participants also said they were less likely to follow his laws and believed the laws were less fair. These effects were again driven by reductions in perceived legitimacy, rather than the financial outcome itself.

“I was surprised we found the effect on compliance with the law,” Alam told PsyPost. “I was confident that exposure to the report would make people view Congress as less legitimate but was unsure whether this would necessarily affect reported compliance.”

Supplemental studies reinforced the broader point. In one small study, participants who read about Congressional stock trading rated legislative procedures as less fair. In another, participants overwhelmingly rated it as unfair for lawmakers to trade stocks in industries they help regulate.

The results of this research suggest that even legal behavior—if perceived as ethically questionable—can harm public trust in democratic institutions. When people see lawmakers engaging in behavior that appears self-serving, they may begin to question not just individual politicians but the legitimacy of the institution as a whole.

This has important implications for public policy. While previous debates have focused on whether lawmakers gain an unfair financial advantage, the study highlights a different concern: that stock trading may weaken the moral authority of Congress itself. As a result, the researchers argue, banning or restricting Congressional stock trading could help restore public confidence and reinforce democratic norms.

“To me the takeaway is that stock trading by members of Congress has negative consequences for our democracy,” Alam said. “A natural conclusion of this is that efforts to regulate the practice could play a role in restoring trust in government.”

However, the study is not without limitations. All the results are based on self-reported attitudes in an online survey, rather than actual behavior. The researchers acknowledge that while attitudes are informative, they don’t always translate directly into action. Future research could examine whether these findings hold over time, whether repeated exposure to reports of trading compounds the effects, and whether people’s actual behavior—such as voting or obeying new laws—is influenced in similar ways.

“I became a social psychologist to not only understand the human mind but to also do work that can speak to current events,” Alam added. “This was such a great taste of doing the latter and through it I have been able to talk to reach many people. It makes me want to keep working on applied problems.”

The study, “Knowledge of politician stock trading reduces congressional legitimacy and compliance with the law,” was published May 20, 2025.