James Leroy Wilson's blog

Friday, January 04, 2013

When it seems too good to be true, it probably is

Michael Munger, an economist, repeats this joke about economists:
Economist and entrepreneur are walking down a street in San Francisco.  The entrepreneur sees a $100 bill, and generously offers to split the “found” value with the economist.

The economist refuses, saying that it’s not possible.  “After all,” the economist announces, if there had been a $100 bill in the street, someone would have picked it up.  In equilibrium, there are no arbitrage profit opportunities!”  

The entrepreneur shakes his head in scorn and pockets the full $100.

The comment I posted -- and I'm not an economist: 
What I appreciate about the joke is that the economist is always skeptical of something that looks too good to be true. He won't always be right, but he'll almost always be right, for the simple reason that on a global average one's overall consumption will have to approximate one's overall production.

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