I have had twits like this assault me with endless harassing bullshit, too. Like follow me around and not leave me alone. Depends on many variables, but in the one presented, Joe did the right thing. Just be reasonably pleasant but get the frick out of there. Now, sometimes, if the verbal assault becomes "menacing", there's only one thing to do: attack the twat with everything you have and don't stop until he's no longer a potential threat.
Sure, this guy is some BJJ expert, but MANY times during his harrassment he left himself open to one hell of a beating ... if the dude on the receiving end is athletic, strong and has a degree of ability to deliver combinations and pure aggression.
Not saying these MMA/BJJ cats ain't dangerous, but they ARE human, and thus can be rocked just like any other human. And as we all know, a street fight isn't exactly the same as a cage fighting sport.
A quick one-two punch, grab, squeeze and twist at the balls (or something) and brutal biting of any limb or part of the face, and victory's near. There are endless variations on a defensive/offensive spring into action when in such a situation.
The killer for most, however, is a lack of initiative to act. And viciously.
Bottom line: The guy harrassing Joe is a dink and Joe was wise ... because he knew, with approximating certainty, that the jackass was blustery and retarded. Be kinda nice and scram.
Sometimes altercation can't be avoided, though. In such cases, never hesitate when you know it's gonna happen. Be the FIRST to strike, and with unparalleled intensity and viciousness.
Being a doorman/bouncer for many years, I have seen many street/bar fights and can tell you one thing for certain. The first to attack and attack in a big way is usually the victor. This, of course, factors in both combatants being roughly the same size, athletic ability, etc. Anything you have additional in your "deck of cards", size, strength, aggression, etc., only adds favour to your chances, regardless.