If a rational counterparty is willing to trade with you, their willingness is itself information that should make you unwilling.
Groucho resigned from a Hollywood club by telegram, declining to belong to "any club that will accept me as a member". Milgrom and Stokey proved the formal version in 1982: with common knowledge and no noise traders, an offer reveals the offerer's private information before anyone accepts, so no profitable trade occurs. Thaler uses the joke as the name for it, noting the economist's version is less funny.
In practice
- A seller unusually eager to close before a survey has told the buyer something the survey would have.
- A candidate available at short notice and below market rate is a fact about the market, not only about the candidate.
- Standing
- The joke is the name economists use for the no-trade theorem. Real trading volumes are enormous, so the theorem's assumptions do not hold in practice; what survives is the habit of asking why the other side is selling.
- Subject
- Economics & Incentives
- Essay
- The theories behind every argument about money