Knowing That Everyone Else Knows

Key Concepts

Common Knowledge: Something that is known to be known, and known to be known to be known, and so on, ad infinitum. It's crucial for coordination and making arbitrary choices that work for everyone.
Coordination Problem: Situations where multiple individuals must make the same choice for a mutually beneficial outcome, even if the choice itself is arbitrary (e.g., driving on the right or left).
Pluralistic Ignorance: A situation where no one in a group believes something, but everyone thinks that everyone else does.
Abilene Paradox: An economic term for pluralistic ignorance, where a group collectively decides on a course of action that is counter to the preferences of many of the individuals in the group because each individual believes that their own preferences are contrary to the group's and thus does not raise objections.
Keynesian Beauty Contest: A thought experiment where participants guess which face will be chosen by other participants as the prettiest, reflecting speculative investing where one buys a security based on the expectation of selling it at a higher price to others.
Greater Fool Theory: The idea that one can profit by buying an undervalued asset and selling it at a higher price to another buyer, regardless of the asset's intrinsic value.
Network Effects: A phenomenon where the value of a product or service increases as more people use it (e.g., social media platforms, job boards).
Schelling Points (Focal Points): Solutions that people tend to choose in the absence of communication because they are perceived as natural, special, or relevant.
Negative Polarization: A state where people not only disagree but also view those with opposing views as inherently evil.
Conspicuousness/Publicity: Elements that make something noticeable and observable by many, thus facilitating the creation of common knowledge.

Common Knowledge: What It Is and How We Use It

Steven Pinker, in conversation with Adi Ignatius, discusses his book on the concept of "common knowledge." He clarifies that he uses the term in a specialized, technical sense, not as conventional wisdom or something widely known, but as something that is "known to be known." This means that "I know something, you know it, you know that I know it, I know that you know it, and so on, ad infinitum."

The Importance of Common Knowledge for Coordination

Pinker emphasizes that common knowledge is essential for coordination among two or more people. It allows individuals to be "on the same page" and make choices that might be arbitrary but work for everyone as long as they make the same choice. Examples include deciding whether to stay home on Saturday or Sunday, or whether to drive on the right or the left side of the road.

He notes that for common knowledge to function, individuals don't need to engage in an infinite regress of thought. Instead, it arises when something is "conspicuous, or self-evident, or public, or out there." If an event is observed by multiple people simultaneously, it creates a sense of common knowledge.

"The Emperor's New Clothes" as an Example

Pinker uses the story of "The Emperor's New Clothes" as a foundational example. The little boy's statement that the emperor was naked didn't reveal new information to anyone, as everyone could see it. However, by voicing it publicly, he transformed the state of knowledge. Suddenly, "everyone knew that everyone else knew that everyone else knew that the emperor was naked." This highlights how a public declaration can solidify shared understanding.

Social Relationships as Coordination Games

Beyond arbitrary conventions, Pinker suggests that informal social relationships are also matters of common knowledge and coordination games. Whether individuals are friends, whether one defers to another, or whether they are transactional partners or lovers, these relationships are solidified by public signals that inaugurate them.

Common Misconceptions and Pretense

The discussion then delves into situations where common knowledge can be based on misconception or pretense, leading to phenomena like "pluralistic ignorance" or the "spiral of silence."

Pluralistic Ignorance/Abilene Paradox: Pinker explains this as a situation where "no one actually believes something, but everyone thinks that everyone else believes it, but no one actually does."
- Fraternity Example: A classic study showed fraternity members privately found excessive drinking foolish but believed all other members thought it was cool, leading them to continue the behavior.
- Saudi Arabia Example: Many men privately believed women should have the right to work and drive but refrained from allowing their wives to do so, mistakenly thinking all other men disapproved.

Applications in Economics and Finance

The conversation pivots to the economic and financial implications of common knowledge, particularly in market dynamics.

The Keynesian Beauty Contest and Speculative Bubbles

Pinker elaborates on the Keynesian beauty contest, a concept where judges are rewarded for selecting the contestant they believe other judges will select. This mirrors speculative investing, where individuals buy assets not for their intrinsic value but because they anticipate selling them at a higher price to others who believe the asset is undervalued.

Greater Fool Theory: This is directly linked to speculative bubbles, where investors buy in the hope that "other people will, in the future, will want to buy in."
Crypto and Meme Stocks: Recent examples like cryptocurrency bubbles and meme stock appreciation are cited as instances where the "greater fool theory" plays out, driven by the belief that others will continue to invest.
Public Signals: The initiation of such bubbles can be triggered by public signals, rumors, or influencers promoting a stock, even if its fundamentals are weak. The knowledge that others are investing can drive further investment.

Marketing and Network Effects: The Apple Macintosh 1984 Ad

A significant case study discussed is Apple's iconic 1984 Super Bowl advertisement.

The Challenge: Apple faced a coordination problem: a revolutionary new product (Macintosh with a graphical interface) would only be successful if enough people bought it to drive down prices, create a user community, and foster a market for peripherals.
The Solution: The Super Bowl, being a widely watched and anticipated event, served as a powerful common knowledge generator. The ad itself, directed by Ridley Scott, didn't focus on the product's features but rather on its revolutionary potential, referencing George Orwell's novel.
Generating Common Knowledge: The ad's purpose was to advertise the potential buyership. By broadcasting it during the Super Bowl, Apple ensured that a large audience would see it, and crucially, know that many others were also seeing it. This created the common knowledge necessary to overcome the initial adoption hurdle.
Michael Chwe's Analysis: Political scientist Michael Chwe's work is referenced, showing that companies whose products depend on network effects (like Monster.com, an early job-seeking website) or prestige goods (consumed publicly and where brand image is important) are willing to pay a premium for venues that generate common knowledge, such as the Super Bowl. The Discover credit card is another example, requiring widespread adoption to be accepted by merchants.

The COVID-19 Toilet Paper Shortage: A Flip Side of Common Knowledge

The conversation turns to the COVID-19 toilet paper shortage as an example of the flip side of common knowledge.

Justin Wolfers' Speculation: The shortage is likened to a bank run, where people hoard toilet paper not necessarily due to an actual shortage but because they believe others are hoarding, leading to a "reverberant doubt."
The Role of Media: The shortage's origin is traced back to a 1973 Johnny Carson joke on The Tonight Show about a potential toilet paper shortage. Even though it wasn't true at the time, the joke, delivered by a trusted public figure, created the common knowledge that toilet paper becomes scarce in emergencies, leading to actual hoarding.
Reinforcement: Retailers posting "max three rolls per customer" signs reinforced the idea of scarcity but also reassured people that no one else could panic-buy, thus ending the shortage.

Common Knowledge in Negotiation

Pinker explains how common knowledge is fundamental to negotiation.

Coordination Games: Negotiation is a type of game theory scenario where one's best option depends on the other party's actions. Multiple equilibria can exist, where both parties are better off if they coordinate on a specific outcome.
Battle of the Sexes Analogy: This game theory concept, though not about actual sexes, illustrates a situation where two parties want to spend time together but have different preferences (e.g., hockey game vs. opera). Both would rather do something together than nothing, but they need to coordinate.
Thomas Schelling's Insights: Political scientist Thomas Schelling's work on negotiation is highlighted. He observed that parties often settle on arbitrary points like "splitting the difference" or round numbers.
- Focal Points (Schelling Points): These are solutions that "pop out" in the minds of both parties because they are perceived as special or salient, facilitating agreement. A salesman setting a rock-bottom price of $30,007.26 is less likely to be agreed upon than a round number.

The Erosion of Common Knowledge in the Digital Age

The discussion addresses concerns about the erosion of common knowledge in the current media landscape.

Competing Truths: The fragmentation of media, with the rise of cable news and social media, has led to "competing truths" and potentially "competing common knowledges" within different communities.
Negative Polarization: This fragmentation is seen as a contributor to increased negative polarization, where individuals not only disagree but also view opposing viewpoints as morally reprehensible.
Closed Networks: Social media platforms can create "closed networks" with limited interaction between them, fostering separate pools of common belief.
Loss of Public Signals: The decline of universally recognized public signals like the three major TV networks or Johnny Carson means there's less common ground for shared understanding.

Creating Positive Common Knowledge within Organizations

Pinker offers insights into how leaders can foster positive common knowledge within companies.

Conspicuousness and Publicity: Common knowledge is generated by conspicuous and public events. Face-to-face meetings are more effective than remote ones in this regard because they allow individuals to see each other and know that others are seeing each other.
Publicly Conspicuous Notices: Pronouncements and public signals remain important.
Federal Reserve Statements: The scrutiny of statements from the Federal Reserve chairman is an example. Their words can create their own reality because people, knowing others have heard them, will act based on anticipated reactions, potentially leading to bubbles or recessions.
- Alan Greenspan's Quote: "Since I've become chair of the Fed, I've learned to mumble with great incoherence. If I seem clear to you, you must have misunderstood what I said." This highlights the careful management of communication to avoid unintended consequences.

Common Knowledge and Authoritarian Regimes

The conversation touches upon the role of common knowledge in authoritarian politics.

Control and Fear: Dictatorships rely on controlling information and suppressing dissent. In regimes like those in China or Russia, people might know the regime is "rotten" but refrain from public protest due to fear of being the only one and facing severe consequences.
The Power of Coordination: As Gandhi famously stated, "in the end, you will leave because 100,000 Englishmen simply cannot control 350 million Indians if the Indians refuse to cooperate." The ability of people to overpower a regime hinges on their ability to coordinate their actions.
Public Protests as Generators: Public protests, where individuals see each other, can generate the common knowledge needed for collective action. This is why dictators often fear public gatherings and clamp down on media.

The Soviet Blank Leaflet Joke

A joke from the Soviet Union illustrates the subversive power of common knowledge: a man handing out blank leaflets in Red Square is arrested. When questioned, he states, "What's there to say? It's so obvious." The blank leaflets, in a context where dissent is known but not openly expressed, serve to generate common knowledge that "everyone knew that everyone knew it." This is why carrying blank signs has led to arrests in Russia and was seen in blank paper protests in China after the mishandling of COVID.

Conclusion: A Lens for Understanding the World

Pinker concludes by stating that his book is not a "how-to" manual but a work of fundamental science offering a lens through which to view the world.

Ubiquity of Coordination: Coordination is pervasive in human affairs, from corporations and institutions to relationships and families. All involve people trying to coordinate, which requires signals of common knowledge.
Managing Common Knowledge: Often, to preserve relationships, people must actively keep things out of common knowledge. This leads to phenomena like politeness, euphemism, tact, and hypocrisy.
- Politeness as Benign Hypocrisy: Phrases like "If you could pass the salt, that would be awesome" are not literal but serve to avoid bossing others around, preserving relationships by not creating the common knowledge that one is commanding another.
Preserving Relationships: These protocols, while not always direct or honest, are necessary for functioning and preserving relationships, which are fundamentally coordination games dependent on common knowledge. Avoiding the creation of certain common knowledge can prevent the disruption of relationships.