Just before I fell asleep last night, I was thinking of attempting a chain of reasoning that goes from top down instead of from bottom-up, which is how I see my previous thoughts on this topic:
If you can see N blue-eyed people, then it is possible that if you don’t have blue eyes then any one of those N blue-eyed people can see N-1 blue-eyed people. Therefore, you are sure everybody can see at least N-1 blues. Thus, it is common knowledge that there are N-1 blues or more people.
So, if there are 50 people, you are reasonably sure that everyone can see at least 49. “There are 49 or more blues” is common knowledge
However, if you think that someone sees 49 people, then that person is inclined to think that there exists someone who sees only 48 by the above argument.
The general principle is if you can personally see N people then you can be sure that:
Everybody knows there are at least N-1 blue-eyed people.
Everybody knows that everybody knows there are at least N-2 blue-eyed.
A pattern starts up.
Everybody knows that everybody knows that everybody knows there are at least N-3 blue-eyed people.
This can go on forever.
Everybody knows that everybody knows that … there are at least 0 blue-eyed people.
The stranger adds the information that:
There is at least 1 blue-eyed person.
Everybody knows there is at least 1 blue-eyed person.
Everybody knows that everybody knows there is at least 1 blue-eyed person.
Everybody knows that everybody knows … there is at least 1 blue-eyed person.
Thus, one of the many pieces of information given by the stranger must eventually contradict the statement concerning 0 blue-eyed people.
What I am really trying to emphasize here is that each individual has a series of beliefs. One of the dangers here is to think of each person’s beliefs in isolation without looking at the totality of statements that they believe, not just about what they think, but also about what everybody thinks, and about what everybody thinks that everybody thinks.
(This article was originally a comment which can be found here.)