Working Paper BETA #2000-07

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Title : Common Knowledge and Interactive Behaviors: A Survey

Author(s) : Frédéric KOESSLER

Abstract : 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 conflicts 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.

Key-words : Interactive knowledge, common knowledge,information structure, communication.

JEL Classification : C72, D8