Michael Chwe explains common knowledge, and why it matters to Mark Zuckerberg

Michael Chwe for UCOMM - 130321Michael Chwe, whose book, Rational Ritual: Culture, Coordination, and Common Knowledge has, in his words, “made its way out of the backwaters of course syllabi” to catch the attention of Mark Zuckerberg, had a terrific piece on the Monkey Cage blog of the Washington Post explaining exactly what common knowledge is, and why it’s so important. According to Chwe, common knowledge is generated by large scale social media platforms like Facebook, and this matters because of the many ways it can be leveraged, among them, stopping violence against women, and helping to foster collective political action.

From his piece on the Washington Post:

When Facebook’s Mark Zuckerberg chose my book “Rational Ritual” last week for his “A Year of Books” book club, I was surprised. “Rational Ritual” came out in 2001, and has somehow slowly made its way out of the backwaters of course syllabi into the elevated spheres of technology companies. This is gratifying to me, because even though it is a scholarly book published by a university press, “Rational Ritual” is essentially a popularization.

“Rational Ritual” tries to popularize the concept of “common knowledge” as defined by the philosopher David Lewis and the sociologist Morris Friedell in 1969. A fact or event is common knowledge among a group of people if everyone knows it, everyone knows that everyone knows it, everyone knows that everyone knows that everyone knows it, and so on.

When I was a graduate student in economics in the late 1980s, most people considered common knowledge as an idea of only theoretical interest. People who thought about collective action (and its flip side, political repression) were mostly interested in the problem of free riding, rather than how people communicate. But social change isn’t just about tackling incentives to free ride – it’s also a problem of coordination.

Read the rest here.

Recently, Michael Chwe, a master of interdisciplinary applications for otherwise “rarified mathematical theories” has been particularly active in exploring how game theory can help curb sexual violence. Check out his piece on the topic on the PBS Newshour blog here. His recent Q&A with Facebook Books is up here.

Math Drives Careers: Author Ignacio Palacios-Huerta

Logical thinking, analytical skills, and the ability to recognize patterns are crucial in an array of fields that overlap with mathematics, including economics. But what does math (or economics, for that matter) have to do with the world’s most popular sport? Economist Ignacio Palacios-Huerta’s recent book, Beautiful Game Theory: How Soccer Can Help Economics  made a splash during the last World Cup, showing how universal economic principles can be understood through soccer. Read on for his thoughts on why the language of modern economics, including behavioral economics, is mathematics.

The Role of Mathematics in my Life as an Economist

To describe the role of mathematics in my life as an economist, I first need to explain what, to me, Economics is all about. So let me take you to one of my favorite books, A Treatise of Human Nature, written almost 300 years ago by David Hume.

Beautiful Game TheoryIn the introduction Hume writes, “‘Tis evident that all the sciences have a relation, more or less, to human nature … Even Mathematics, Natural Philosophy, and Natural Religion, are in some measure dependent on the science of Man, [which is] the only solid foundation for the other sciences”. By the science of man Hume means the understanding of all facets of human nature, including preferences, senses, passions, imagination, morality, justice, and society. This science applies wherever men are making decisions, be it running public institutions or countries, as employees in firms, or as individuals investing in education, taking risks in financial markets, or making family decisions. This science of man is thus what one may initially be tempted to call Economics for, as George Bernard Shaw puts it in my favorite definition, “Economy is the art of making the most of life”.

But of course this definition is incomplete because other social sciences (e.g., sociology, history, psychology, political science) are also concerned with human behavior. So what makes Economics “different”? Here is the difference: the difference is not the subject matter but the approach. The approach is totally different, and a very mathematical one. As such, mathematics plays a critical role in the life of any economist.

Let me elaborate. Continuing with Hume, it turns out that he also anticipated our methodological approach in modern Economics: observation and logical arguments. Which can be translated as: data and data analysis (what we call econometrics), and mathematics, for mathematics is, after all, the language of logic. So in Economics, as in physics, we write down our ideas and theories in mathematical terms to make logical arguments, and then we use more math (statistical, econometrics, etc) to check whether the data appear to be consistent with the theoretical arguments. If they are, the evidence can be said to support the theory; if they aren’t, the theory needs to be refined or discarded. Yes, lots of math and related techniques provide what is our distinct “economics approach to human behavior.” It is not the subject matter but the approach that is different, and it heavily relies on mathematics.

To economists and other social scientists, mathematics has many methodological virtues: it can lend precision to theories, can uncover inconsistencies, can generate hypothesis, can enable concision and promote intelligibility, and can sort out complex interactions, while statistical and econometric analysis can organize and carefully interpret voluminous data.

None of this is obvious when you begin studying Economics (“Why should I take all this math, statistics and econometrics? Why all this pain?”). But I think most of us soon learn to appreciate that the language of modern economics is mathematics, and that it is rightly so. And this is not math for the sake of math (as in pure mathematics), but math with a purpose: modeling human behavior.

Let me conclude by saying that since the economic approach is applicable to all human behavior, any type of data about human activity can be useful to evaluate economic theories. This includes, why not, sports data, which in many ways can be just perfect for testing economic theories: the data are abundant, the goals of the participants are clear, the outcomes are easy to observe, the stakes are high, and the subjects are professionals with experience. If a theory is “correct”, sport is a good setting to check it.

So just as data involving falling stones and apples were useful to Galileo Galilei and  Isaac Newton to test for the first time theories that were important in physics, data from sports can be useful in Economics to do exactly the same. As such in some of my contributions to Economics I have used math to develop theoretical models, and further mathematical tools applied to this type of data to test them.

And the REAL World Cup Winner is…

IPHWell, surely everybody knows by now – the 2014 World Cup is over, and Germany went home with the trophy.

But there’s another “winner” worth mentioning: Princeton University Press author and London School of Economics professor Ignacio Palacios-Huerta, whose latest book, Beautiful Game Theory: How Soccer Can Help Economics, garnered some wonderful press over the course of the tournament. Mr. Palacios-Heurta not only received a mention in the Science section of the New York Times and was the subject of a full-length article in strategy+business; he also penned an op-ed for the New York Times’s Sunday Review and was featured in stories in both the Financial Times and Worldcrunch.

Sure, he can’t rally like Ronaldo or kick it like Klose; but this fùtbol fanatic’s research presents advantages that extend far beyond the pitch.

Palacios-Huerta is unique in that he utilizes soccer data to test economic theories. In his op-ed in the Times, Palacios-Huerta lays out the basics of this experiment by explaining its origins in the Nash Equilibrium, which analyzes how people should behave in “strategic situations” and stresses that, in order to “win,” they shouldn’t repeat their choices. He says that, “according to Mr. Nash’s theory, in a zero-sum game (i.e., where a win for one player entails a corresponding loss for the other) the best approach is to vary your moves unpredictably and in such proportions that your probability of winning is the same for each move.”

He chooses penalty kicks to demonstrate this theory because they’re zero-sum games, wherein it’s ill-advised to use a strategy repeatedly. The explanation for this is relatively simple: a player’s shots become predictable if he always kicks to the same side of the net, making them easier to block. A lot of legwork (pun somewhat-intended) has gone into proving this idea: Palacios-Huerta analyzed 9,017 penalty kicks between 1995 and 2012, to find that successful players typically distributed their shots unpredictably and in just the right proportions. We won’t get into the numbers here, but they’re abundant in both the book and the op-ed.

Other research by me and others has shown that data from soccer can shed light on the economics of discrimination, fear, corruption and the dark side of incentives in organizations. In other words, aspects of the beautiful game that are less than beautiful from a fan’s perspective can still be illuminating for economists.”

And penalty kicks are just one handy example. Data from soccer can also illuminate one of the most prominent theories of the stock market: the efficient-market hypothesis, which essentially posits that the market processes economic data so quickly that any news relating to a stock is incorporated into its price before anyone can even act on it, diminishing the risk of insider trading.

We’re excited to see more of what these soccer stats can do to advance economic theory, and more importantly, how Palacios-Huerta can translate something so complicated, using something so, well…beautiful.


Ignacio Palacios-Huerta is the author of:

BGT Beautiful Game Theory: How Soccer Can Help Economics by Ignacio Palacios-Huerta
Hardcover | 2014 | $35.00 / £24.95 | ISBN: 9780691144023
224 pp. | 6 x 9 | 30 line illus. | eBook | ISBN: 9781400850310 | Reviews Table of Contents   Introduction[PDF] 

New Economics and Finance Catalog!

We invite you to browse and download our new economics and finance catalog!

Of particular interest are some of our forthcoming titles including Benn Steil’s remarkable The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order, Ben S. Bernanke’s insightful The Federal Reserve and the Financial Crisis, and Anat Admati and Martin Hellwig’s engaging and accessible The Bankers’ New Clothes: What’s Wrong with Banking and What to Do about It. Also note Justin Yifu Lin’s The Quest for Prosperity: How Developing Economies Can Take Off. Interwoven with insights, observations, and stories from Lin’s travels as chief economist of the World Bank and his reflections on China’s rise, this book provides a road map and hope for those countries engaged in their own quest for prosperity.

Our catalog also exhibits critical textbooks including David M. Kreps’ rigorous Microeconomic Foundations I: Choice and Competitive Markets, Steven Tadelis’ comprehensive Game Theory: An Introduction, Ariel Rubinstein’s essential second edition Lecture Notes in Microeconomic Theory: The Economic Agent, and Michael Wickens’ superior second edition Macroeconomic Theory: A Dynamic General Equilibrium Approach.

If you’re interested in hearing more about our economics and finance titles, sign up with ease here: http://press.princeton.edu/subscribe/ Your email address will remain confidential!

We’ll see everyone at the meeting of the Allied Social Science Associations January 4-6 in San Diego, CA. Come visit us at booth 308! Be sure to stop by Saturday, January 5 at 1:00 p.m. for a book signing with Justin Yifu Lin, author of The Quest for Prosperity: How Developing Economies Can Take Off.

New and Forthcoming Titles in Economics and Finance

catalog coverAre you at the annual Allied Social Science Associations meeting in Denver this week?  We invite you to check out our new line-up of titles.  You can now find our new 2011 Economics and Finance catalog online at:


You will find books by Raghuram G. Rajan, Max H. Bazerman & Ann E. Tenbrunsel, John Quiggin, Kaushik Basu and Diane Coyle, just to name a few.  And if you’re at ASSA on Saturday, we hope to see you at the Popular Economics panel discussion moderated by Princeton University Press’s Director, Peter J. Dougherty.

Popular Economics Panel with:

Robert Shiller (Yale University)
Robert Frank (Cornell University)
Diane Coyle (Manchester University)
Steve Levitt (University of Chicago)
Panel Moderator: Peter Dougherty (Princeton University Press)

Jan 08, 2011 8:00 a.m., Sheraton, Governor’s Square 15

Stop by and visit booth no. 311 to say hello and browse the books.  We look forward to seeing you there. For a free e-mail notification about new titles in Economics and Finance, sign up at: