The psychology of coordination and common knowledge.

Research on human cooperation has concentrated on the puzzle of altruism, in which 1 actor incurs a cost to benefit another, and the psychology of reciprocity, which evolved to solve this problem. We examine the complementary puzzle of mutualism, in which actors can benefit each other simultaneously, and the psychology of coordination, which ensures such benefits. Coordination is facilitated by common knowledge: the recursive belief state in which A knows X, B knows X, A knows that B knows X, B knows that A knows X, ad infinitum. We test whether people are sensitive to common knowledge when deciding whether to engage in risky coordination. Participants decided between working alone for a certain profit and working together for a potentially higher profit that they would receive only if their partner made the same choice. Results showed that more participants attempted risky coordination when they and their prospective partner had common knowledge of the payoffs (broadcast over a loudspeaker) than when they had only shared knowledge (conveyed to both by a messenger) or private knowledge (revealed to each partner separately). These results support the hypothesis that people represent common knowledge as a distinct cognitive category that licenses them to coordinate with others for mutual gain. We discuss how this hypothesis can provide a unified explanation for diverse phenomena in human social life, including recursive mentalizing, performative speech acts, public protests, hypocrisy, and self-conscious emotional expressions.