One of the chief inputs from the use of Game Theory in economics is the concept of "common knowledge" - when all players know what the other players know. It is an important mechanism to create an equilibrium (i.e. coordination), but does it matter whether the initial premise - i.e. what the players know, is true?
Common unknowledge - a term created by Nick Schandler - refers to a case where coordination occurs but is based on a lie. Think of The Emporor's New Clothes: the villagers knew that the Emporor was naked, but acted as if he wasn't - and this still produced coordination. Think also of Timur Kuran's Public Truths, Private Lies - countervaling social pressure makes people "go along" with the status quo, whilst privately harbouring alternative beliefs. Whilst common knowledge and common unknowledge are analytically equivalent (both produce an equilibrium), it's obvious that the former is far more stable. It only takes a small child to say
He has nothing on
and the equilibrium is broken (although quickly restored to a new one, based on truth). People are currently rioting on the streets of Budapest, because the Prime Minister has admitted that his party lied to the electorate at the last election:
"We obviously lied through the past year and a half. It was perfectly clear that what we were saying was not true."
Well no shit! People tend to realise that poltiicians lie to us, but the myth that makes it a coordination point is that they pretend they don't. Everyone accepts this bargain, until BOOM a Prime Minister actually admits to it, accepting their nakedness, and we take to the streets to protest.
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