THE INCOHERENCE OF AGREEING TO DISAGREE

The agreeing-to-disagree theorem of Aumann and the no-expected-gain-fr om-trade theorem of Milgrom and Stokey are reformulated under an opera tional definition of Bayesian rationality. Common knowledge of beliefs and preferences is achieved through transactions in a contingent clai ms market, and mutual expectations of Bayesian rationality are defined by the condition of joint coherence, i.e., the collective avoidance o f arbitrage opportunities. The existence of a common prior distributio n and the impossibility of agreeing to disagree follow from the joint coherence requirement, but the prior must be interpreted as a 'risk-ne utral' distribution: a product of probabilities and marginal utilities for money. The failure of heterogenous information to create disagree ments or incentives to trade is shown to be an artifact of overlooking the potential role of trade in constructing the initial state of comm on knowledge.