Veiled threats or polite requests convey a message without making it "official" common knowledge. This preserves the existing social relationship (e.g., friends, colleagues) by providing plausible deniability, even when the underlying meaning is clear to both parties.
Contrary to popular belief, economists don't assume perfect rationality because they think people are flawless calculators. It's a simplifying assumption that makes models mathematically tractable. The goal is often to establish a theoretical benchmark, not to accurately describe psychological reality.
Unlike a spoken apology ("cheap talk"), a blush is an uncontrollable physiological response. It credibly signals to others that you acknowledge breaking a social norm, establishing common knowledge of your remorse and your acceptance of the norm itself. This makes the "apology" authentic.
Phenomena like bank runs or speculative bubbles are often rational responses to perceived common knowledge. People act not on an asset's fundamental value, but on their prediction of how others will act, who are in turn predicting others' actions. This creates self-fulfilling prophecies.
A clear statement from a financial leader like the Fed Chair can instantly create common knowledge, leading to market movements based on speculation about others' reactions. Alan Greenspan's infamous "mumbling" was a strategic choice to avoid this, preventing a cycle of self-fulfilling expectations.
When a norm is violated publicly, it threatens the common knowledge that the norm exists and is enforced. The resulting public punishment, like a digital-age pillory, isn't just about the transgressor; it's a signal to the entire community that the norm is still in effect, thereby restoring common knowledge.
The act of looking at someone's eyes—the part of them that does the looking—creates an unbreakable feedback loop of "I know you know I know..." This immediately establishes common knowledge, forcing a resolution to the social game being played, whether it's a threat, a challenge, or an invitation.
For products valuable only when others use them (like credit cards or social apps), Super Bowl ads are uniquely effective. The value isn't just reaching many eyeballs, but ensuring those eyeballs know *other* eyeballs are also watching, solving the chicken-and-egg adoption problem.