An event is considered common knowledge among a group of agents when each player knows the information, each player knows that the other one knows it, and so on. Common knowledge is the limit of a potentially infinite chain of reasoning about knowledge. In this scene from Dodgeball, White Goodman (Ben Stiller) is trying to assert that common knowledge exists between himself and Pete LaFleur (Vince Vaughn).
Adam Ruins Everything — Revealing Salaries
Adam Ruins Everything is a half-hour informational comedy were host, Adam Conover, debunks popular myths. Each episode is divided into 3 segments with some common theme. In the Spring of 2018, James Tierney and I sat down to go through all three seasons of Adam Ruins Everything to pick out examples in each episode that could be used in an economics course. If you’re curious about the paper, you can read about it here.
In this video, Adam goes through notion that sharing salaries is bad for workers, but focuses on how this practice creates information asymmetry in the workplace and gives managers the power to lower wages since workers aren’t well informed.
Star Trek TNG — Data Overanalyzes
Data is trying to formulate a battle plan for Commander Riker, but he’s assuming that Commander Riker is rational and knows that Data has analyzed his move. Data takes it a step further and hypothesizes that Commander Riker knows that Data knows that the commander has a battle plan. Full information is a tough assumption about rationality, but bounded rationality lets us assume that people have limitations but still respond to incentives in a predictable way. While perhaps a human failure, most of society does not operate on the same level as Data.
Thanks to Peter Nencka for the clip suggestion!
Home Improvement — Asymmetric Information
Tim decides to hide a blow torch from his co-host, Al, in order to teach a lesson to his young children watching at home. Unfortunately, Al doesn’t know that the blow torch has been hidden and he believes he has lost the item on live television. Asymmetric information occurs when one party has more information than the other party in a transaction. When one party has more information, they are better able to make decisions and make take advantage of the unknowing party.
Two and a Half Men — Massage Competition
Alan needs some extra income and decides to offer massages at the mall. He quickly finds stiff competition and gets into a price war with another masseuse. The price war eventually gets so low that the entrant decides to exit the market.
Sherlock — Prisoner’s Dilemma
Sherlock works on a case involving missing women who recently arrived in London. It turns out that a taxi driver was abducting women and having them choose a poisonous pill to determine whether they lived or die. Eager for more excitement, the cabbie convinces Sherlock to play. Sherlock works through the process of trying to determine, by backward induction, which pill would be deadly.
He never finds out if he was right.
This clip was recommended by Christine Cai.
The Princess Bride: Battle of Wits
The Battle of Wits scene may be one of the best game theory examples that students have scene before. It’s a great opportunity to introduce the concept of full information and knowing what the other one knows.
Friends: They Don’t Know That We Know
When teaching game theory, we inevitably spill into the notion of complete information with they “they know we know” and “we know that they know we know.” Now you can have Friends do it for you: