When an author knows that he's full of shit, but doesn't know that he knows that he's full of shit: Quantum of Nightmares, by Charles Stross
Am I referring to myself? Clearly not. Am I full of shit? Yes. I just demonstrated that I know that I am full of shit. However, upon reading my own statement, I become aware of my own knowledge. Also, my own navel. Your navel is Cthulu. Gaze upon it, and go mad. In game theory, one of our core assumptions is "common knowledge of rationality." Each player is rational. Each player knows that every other player is rational. Each player knows that every other player knows that every player is rational, and so forth, turtles all the way down through the infinite regress. Why do we rely upon this assumption? It becomes important for the solution to many types of games. Consider, for example, The Princess Bride . In the famous scene during which Vizini tries to determine the location of the poison, he goes through contortions based on knowledge of who is and is not a great fool. The poin...