Blonde Jokes, Arbitrage, and Corporate Finance

"Take my wife, please." "But seriously, folks . . . " "I tell ya, my hotel room at the last FMA was so small, the mice were hunchbacked." Etc., etc. You've heard all the jokes, but how often do you come across one that's useful (and usable) in class?

The following joke came across the Joke of the Day e-mail service (www.joker.org) recently:

"A lawyer and a blonde woman are sitting next to each other on a long flight from LA to NY. The lawyer leans over to her and asks if she would like to play a fun game. The blonde is tired and just wants to take a nap, so she politely declines and rolls over to the window to catch a few winks. The lawyer persists, saying that the game is really easy and a lot of fun.

He explains how the game works: "I ask you a question, and if you don't know the answer, you pay me, and vice-versa."

Again, she politely declines and tries to get some sleep.

The chauvinistic lawyer figures that since his opponent is a blonde he will easily win the match, so he makes another offer:

"Okay, how about this: if you don't know the answer you pay me only $5, but if I don't know the answer, I will pay you $50."

This catches the blonde's attention and, figuring that there will be no end to this torment unless she plays, she agrees to play the game.

The lawyer asks the first question. "What's the distance from the earth to the moon?"

The blonde doesn't say a word, reaches in to her purse, pulls out a five-dollar bill, and hands it to the lawyer.

Now, it's the blonde's turn. She asks the lawyer, "What goes up a hill with three legs, and comes down with four?"

The lawyer looks at her with a puzzled look. He takes out his laptop computer and searches all his references. He taps into the Airphone with his modem and searches the Net and even the Library of Congress. Frustrated, he sends E-mails to all his co-workers and friends he knows. All to no avail.

After over an hour, of searching for the answer he finally gives up. He wakes the blonde and hands her $50.

The blonde politely takes the $50 and turns away to get back to sleep.

The lawyer, who is more than a little frustrated, wakes the blonde and asks, "Well, so what IS the answer?"

Again without a word, the blonde reaches into her purse, hands the lawyer $5, and goes back to sleep."

Pretty good joke, eh? But what does it have to do with Finance? Think about it. The blonde woman spotted an arbitrage opportunity and exploited it. Clearly, the "law of one price" did not hold in the "market" for answers to riddles.

On top of that, the one who first recognized the price discrepancy (the blonde) quickly exploited it; the "transactions cost" of doing so was the $5 she utimately paid to receive $50.

This little vignette might be useful in introducing the financial markets material, as well as the EMH, and discussions of asset pricing. Then again, it might get you in trouble.

Please feel free to pass along any Finance-related jokes you might have accumulated - I'll post them so everyone can enjoy (and possibly use) them!

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