As a leader, psychology is fundamental to your success – whether that means understanding consumer behavior, team dynamics, or even your own biases and blind spots. Harvard professor Steven Pinker says that an important phenomena to understand is that of common knowledge and its downstream effects. It’s the idea that there is power in knowledge, but also power in knowing what other people know – and that when a large group of people know what others around them know, and vice versa, that’s when major change can happen. He explains how common knowledge underlies meme stocks, the rise of crypto, meeting etiquette and the success of Super Bowl ads. Pinker wrote the new book When Everyone Knows That Everyone Knows . . .: Common Knowledge and the Mysteries of Money, Power, and Everyday Life.
ADI IGNATIUS: I’m Adi Ignatius.
ALISON BEARD: I’m Alison Beard, and this is the HBR IdeaCast.
ADI IGNATIUS: All right. So Alison, the more I think about leadership, the more I think that leading effectively is almost all about psychology.
ALISON BEARD: Yeah, I can see what you mean. You need to understand consumers’ wants and needs, your employees’ wants and needs, your business partner’s wants and needs. Really anticipating everything that stakeholders might do or think.
ADI IGNATIUS: Yeah, exactly. I think successful leaders need to think on multiple levels, both to cope with the complexity of their jobs and to outthink their competition. So our guest today, Steven Pinker, is all about the power of knowledge. Understanding what we know, what we don’t know, and most importantly, whether or not others know what we know. So I know that sounds very Donald Rumsfeldian, but there is power in understanding all of this.
ALISON BEARD: Yeah, it does sound very meta, but Pinker is an expert in explaining very complex topics in a way that feels understandable and applicable to our everyday lives. So I’m interested to hear what he has to say.
ADI IGNATIUS: Absolutely. So Pinker is a professor of psychology at Harvard University, author of the new book, When Everyone Knows That Everyone Knows: Common Knowledge and the Mysteries of Money, Power, and Everyday Life. It’s a book that helps explain everything from the power of Super Bowl ads to the rise of cryptocurrency, to the unspoken rules of how we interact in the office. Here’s our conversation.
ADI IGNATIUS: Steven, thank you for being with us today.
STEVEN PINKER: Thanks for having me.
ADI IGNATIUS: Great. So, your book is about common knowledge, what it is and how we use it and in ways that we’re aware of and in ways that we aren’t aware of. So, for the audience, what are you getting at with common knowledge and why should we care about that?
STEVEN PINKER: I’m using the term specialized sense, not to refer to conventional wisdom or something that is widely known, but to something that is known to be known. That is I know something, you know it. You know that I know it. I know that you know it. You know that I know that you know it, and so on ad infinitum. So, that’s common knowledge in the technical sense. It’s important because it’s necessary for coordination for two or more people to be on the same page to make choices that might be arbitrary, but it works for everyone as long as everyone makes the same choice.
Do you stay home on Saturday or Sunday? Do you drive on the right or drive on the left? Now for common knowledge to work, you don’t literally have to think, “I know that she knows it. I know that she knows.” Because your head starts to spin after one or two levels, and technically, common knowledge requires an infinite number of them, which can’t fit inside a single head. But we have a sense of common knowledge when something is conspicuous or self-evident or public or out there. If I see it while I see you seeing it, then I know that you know that I know that you know it.
ADI IGNATIUS: So this is the emperor has new clothes.
STEVEN PINKER: Well, I begin the book with the story of the emperor’s new clothes because there’s a sense in which it’s a story about common knowledge. When the little boy said the emperor was naked, he wasn’t telling anyone anything they didn’t already know. But he’s changed the state of their knowledge nonetheless because by blurting out what everyone could see within earshot of everyone else, at that moment, everyone knew that everyone else knew that everyone else knew that the emperor was naked.
And another point in the book is that just like driving on the right or driving on the left is a solution to a coordination problem or staying home Saturday or staying home Sunday, respecting paper currency, I suggest that our informal social relationships. Are we friends? Do I defer to you? Are we transactional partners? Are we lovers? All of those are matters of common knowledge as well. They’re coordination games and we solidify them by generating some public signal that we both see that inaugurates the relationship.
There can be forms of common belief, common misconception, common pretense where you do have assumptions about what other people are thinking and vice versa, that in some cases may not actually be a reality. In the case of a common pretense where we refer to that by saying, “We’re ignoring the elephant in the room,” the metaphor is that an elephant in the room is something you can’t ignore, but we’re pretending to ignore it. Sometimes there is a phenomenon called pluralistic ignorance or a spiral of silence. In economics, it’s sometimes called the Abilene Paradox, where no one actually believes something, but everyone thinks that everyone else believes it, but no one actually does.
ADI IGNATIUS: Is there an easy example of that?
STEVEN PINKER: Sure. It was originally studied in a fraternity where all the frat guys said privately that it’s really stupid to drink until you puke and pass out. But they said, “What can I do about it? All the other guys think it’s cool.” It turns out none of them thought it was cool, but everyone thought that everyone else thought it was cool. There’ve been many phenomena like that. It turns out that in Saudi Arabia, most of the men think that women should have the right to work and drive, but they couldn’t allow their wives to do it because they mistakenly thought that all the other men thought that it was impermissible.
ADI IGNATIUS: So I want to lead this conversation mainly into economic, financial, market areas but your book, I’d say it’s challenging in some ways. There are a lot of brain-teasers, there are a lot of prisoner’s dilemmas, things like that, but it’s also fun. I mean there are a lot of popular references, jokes, cartoons, and then examples. So, one of the things you talk about is the Keynesian beauty contest. Which – and if I get it wrong, you’ll correct me, but where a judge doesn’t simply select the contestant that he or she thinks is the most attractive, but rather is rewarded on selecting based on what he or she thinks the other judges will select, right?
STEVEN PINKER: Who are engaged in the same puzzle.
ADI IGNATIUS: In the same thing.
STEVEN PINKER: They’re guessing what everyone else will judge to be the prettiest face, which is different from the old Miss Rheingold competition where people voted on the prettiest face. In the beauty contest that Keynes hinted might have been in the newspapers in his day, this would be London in the ’20s. No one can ever actually verify whether there really was such of a contest. But it was a great example because for Keynes where he said, “Everyone is trying to out-guess other people out-guessing still other people.” He said, “That’s the way speculative investing works.”
They buy the security because they think they can sell it at a higher price to other people who think it’s underpriced, who in turn will want to sell it to still other people. Speculative bubbles, crypto perhaps being one of the most recent examples, are cases where people think that other people in the future will want to buy in, something that’s called the greater fool theory of investing that you invest because you think other people will invest because they think that still other people will invest.
The thing is, of course, bubbles can pop when the market starts to run out of the greater fools who think that it’ll continue to appreciate forever. But this can all get started when there is some public signal. In the case of the emperor’s new clothes, the boy blurting it out, or like a public ceremony or a public signal where if there is just a rumor or some reason to think that other people are getting in, that can cause other people to get in.
A couple of recent examples are meme stocks where an influencer might talk up a stock even if the fundamentals are terrible, pretty crummy. But the fact that other people know that he’s talking it up and they know that still other people are talking up means that it really can appreciate at least for a while.
Two Super Bowls ago, there were a number of high concept ads for crypto exchanges, which mentioned nothing about the advantages of crypto.
ADI IGNATIUS: I remember that. These are the Larry David ads.
STEVEN PINKER: The Larry David, the Matt Damon, where the point of the ads were everyone’s getting into crypto, don’t be left out. In fact, the punchline to the Larry David comic ad was, “Don’t be like Larry, don’t be left out.”
ADI IGNATIUS: So this sounds like a tool that people who understand the psychology could and probably do benefit from, right?
STEVEN PINKER: Yes. Getting back to marketing, I talk about an analysis by a political scientist like Michael Chwe, who is in some ways my predecessor in writing a book about common knowledge where he analyzed the most famous and most expensive ad in history. This was the 1984 ad directed by Ridley Scott of Blade Runner and Alien and Fame. It ran exactly once during the 1984 Super Bowl and it was to introduce the Apple Macintosh. It was a revolutionary new product. Unlike those of us who remember the first personal computers, remember it had a little screen with 24 lines of 80 characters and you had to type in alphanumeric commands like del, fubar, fu.bar, and they were error-prone. They were clumsy.
So, Apple’s coming out this insanely great new product with windows and menus and icons and a mouse. But they realized that no one would buy it if they thought they were the only one buying it because the price wouldn’t come down because of demand. There wouldn’t be a community of users and experts.
So, how do you break the knot and cut the knot and get people to buy something that they’ll only buy if other people are buying it? The answer is the Super Bowl is an annual right in American culture. You know that a lot of people are watching it and you know that a lot of people know that a lot of people are watching it. It is a common knowledge generator.
To break the logjam, Apple paid for this ad. It said nothing about the Apple computer, for those of you who have seen it. It played off the fact that it was January 1984, the date of George Orwell’s novel. So, it showed a grim corporate meeting where gray drones trudge into a cavernous hall and listen to drivel from a voice on the screen, intercut with scenes of a live young woman in a bright red gym shorts and a singlet carrying a mallet. She bursts into the corporate meeting, hammer throws the mallet into the screen, which explodes in a fireball revealing the crawl that says on January 25th, Apple will introduce the Macintosh and you’ll see why 1984 won’t be like 1984.
Now, the point of the ad was not to advertise the product, it didn’t say anything about the product, but to advertise the audience for the potential buyership. It generated common knowledge. I’m seeing the ad. I know lots of other companies are seeing the ad. What Chwe showed… I mean, it’s a story. How did he prove it? I mean, that’s just a sample of one. So, he looked at other products that only work if enough other people adopt it, products that depend on network effects. Monster.com was one of the first job-seeking ads. Now, why would anyone look for a job on Monster.com unless they thought that lots of employers were posting there?
Why would employers post there unless they thought a lot of job seekers were looking for jobs there? Monster.com was introduced at the Super Bowl. Another example is the Discover cred