Recursive mentalizing and public salience in the perception of common knowledge

Abstract

Significance Coordinating actions requires common knowledge: not just knowing something, but knowing that others know it, and so on. This seems impossible for finite minds, yet humans coordinate on scales from couples to countries. We propose people achieve coordination by tracking a few layers of who knows what who else knows and by treating publicly witnessed events as licensing implicit common knowledge. In two studies, participants inferred that public events justified arbitrarily deep mutual understanding, though they sometimes overextended or confused knowledge states. This mix of valid and faulty reasoning helps explain how humans achieve large-scale coordination while also being prone to missteps, from everyday faux pas to collective dilemmas such as bubbles, bank runs, panic buying, and strategic miscalculations.