The incoherence of agreeing to disagree


Journal Article

The agreeing-to-disagree theorem of Aumann and the no-expected-gain-from-trade theorem of Milgrom and Stokey are reformulated under an operational definition of Bayesian rationality. Common knowledge of beliefs and preferences is achieved through transactions in a contingent claims market, and mutual expectations of Bayesian rationality are defined by the condition of joint coherence, i.e., the collective avoidance of arbitrage opportunities. The existence of a common prior distribution and the impossibility of agreeing to disagree follow from the joint coherence requirement, but the prior must be interpreted as a 'risk-neutral' distribution: a product of probabilities and marginal utilities for money. The failure of heterogenous information to create disagreements or incentives to trade is shown to be an artifact of overlooking the potential role of trade in constructing the initial state of common knowledge. © 1995 Kluwer Academic Publishers.

Full Text

Duke Authors

Cited Authors

  • Nau, RF

Published Date

  • November 1, 1995

Published In

Volume / Issue

  • 39 / 3

Start / End Page

  • 219 - 239

Electronic International Standard Serial Number (EISSN)

  • 1573-7187

International Standard Serial Number (ISSN)

  • 0040-5833

Digital Object Identifier (DOI)

  • 10.1007/BF01082053

Citation Source

  • Scopus