This paper surveys the notion of common knowledge taken from game theory and computer science. It studies and illustrates more generally the effects of interactive knowledge in economic and social problems. First of all, common knowledge is shown to be a central concept and often a necessary condition for coordination, equilibrium achievement, agreement, and consensus. We present how common knowledge can be practically generated, for example, by particular advertisements or leadership. Secondly, we prove that common knowledge can be harmful, essentially in various cooperation and negotiation problems, and more generally when there are con icts of interest. Finally, in some asymmetric relationships, common knowledge is shown to be preferable for some players, but not for all. The ambiguous welfare effects of higher-order knowledge on interactive behaviors leads us to analyze the role of decentralized communication in order to deal with dynamic or endogenous information structures.
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Paper provided by Bureau d'Economie Théorique et Appliquée, ULP, Strasbourg in its series Working Papers of BETA with number
2000-07.
Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games D8 - Microeconomics - - Information, Knowledge, and Uncertainty
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