Because of the special interest manifested in ARES 2011 conference related to the distinction between observational equivalence and behavioral equivalence, we decided to pay special attention to this topic. This paper primarily focuses on defining knowledge and analyzing its properties in a multiagent system by developing the approach suggested by Halpern and O'Neill (ACM Trans Inf Syst Secur 2008;12(1); J Comput Secur 2005;13(3):483–512). We carefully elaborate on the internal state of an agent and explain how it is able to influence its actions. After that, two types of state equivalence are considered introspective and extrospective for which we define general and bounded variants. The bounded variants are particularly suited to modeling real-world security protocols. Beside knowledge we introduce beliefs and for both notions we provide two types of definitions, some very abstract (that we call conceptual) and some a bit more intuitive (called operational). In the last section, we use of all the concepts so far defined to introduce reality strategies to highlight the adaptability of an agent to its environment. We conclude that the usefulness of the operationally defined knowledge is a bit counterintuitive.