I have been working on lucid dreaming for almost three years. By "working" I just mean that I have been attempting to induce lucid dreams in myself without using any of the commercial devices they sell for these purposes. The commercial devices are not nearly as effective as the techniques I use. Using various self-discovered techniques I have come to the point where I can reliably predict whether I will dream that I know that I dream next time I dream. Controlling the dream content is difficult. I have very limited control. This is still something I am working on.
This post is not about techniques for inducing lucid dreams or for controlling and changing dream content but about the locution 'I dream that I know that I am dreaming'. I would like it to be the case that when I dream that I know that I am dreaming, then I know that I am dreaming. If I don't know that I am dreaming while I am dreaming, then I have made zero progress over the last three years. The problem is, this sort of inference is not valid in general. If I dream that I know quantum mechanics, then it doesn't follow that I know quantum mechanics. The question then is whether the inference 'I dream that I know that I am dreaming' to 'I know that I am dreaming' is a special case.
I don't think it is. While I no doubt dream that I know that I dream, I don't think this embedded knowledge is the complete source of my knowledge that I am dreaming. So how do I come to know that I am dreaming? I shall help myself to the assumption that we are conscious of some dream content when we dream. We can form beliefs about dream content on the basis of our conscious dream states. For example, if I dream that I stole a tiger from the zoo, I am conscious of having stolen a tiger from the zoo. So I can come to (mistakenly) believe that I have stolen a tiger from the zoo. That's why we sometimes become so relieved (or disappointed) when we wake up and defeaters smack us in the face. We then realize our beliefs were false.
Return now to the dream content that I know that I dream. I can infer from that dream content that I dream. Since I can form beliefs about the dream content I am conscious of, I can come to believe that I dream. When I wake up, I do not wake up to defeaters. Instead I receive confirmation that my belief was true at the moment of wakening. My wakening provides strong evidence that my belief was true. So when I wake up, I know that I was dreaming.
This is not quite good enough. I want to ensure that I know that I am dreaming while I am dreaming, not just when I wake up. Can I gather evidence for my non-dream belief inside my dream? Well, I know I can gain knowledge of whether my belief that I was dreaming was true after I wake up. I can use this knowledge to gain insight into which signs are good signs of dream states.
The moment I start believing while I am dreaming that I am dreaming, I start collecting evidence. Evidence varies from person to person. But there appears to be some overlap. Over the years I have learned that clocks and watches don't work reliably in my dreams. You normally cannot read a letter twice, as it will say something different on the two occasions. Change blindness is prevalent in dreams. The colors of people's shirts quickly shifts, sometimes people show up at a party in one outfit and later they are wearing something entirely different. If you ask them, they will always have a story to tell you. But the story doesn't make sense. For example, they will say that they brought the second outfit but you noticed they didn't carry anything with them when they entered. People who were not in the room at the beginning of the event suddenly materialize, small rooms suddenly are large ballrooms, the establishment suddenly has a kitchen, food magically appears. You can train yourself to pay attention to these kinds of changes. Unexplained changes are signs that you are dreaming.
The way to acquire knowledge that you are dreaming while you are dreaming now is straightforward. You gather evidence from the dream in support of your belief that you are dreaming. When you have collected sufficient evidence, you know that you are dreaming. At this point, you become more powerful. But even then, changing dream content at will is exceedingly difficult. While you have some control over your own actions, it is difficult to control what other people do. It is difficult to make their behavior deviate from their normal waken behavior. If you ask your first-grade school teacher to undress in the middle of the street, she is not going to do it. She might smack you. I don't have a special desire to see my first-grade teacher in her undies, but I am still working on gaining control over dream content. I think my past failure to gain full control has to do with wanting to make big changes all at once. My brain is not going to allow that. So I have to begin with little changes. If I really had a desire to see my first-grade teacher in her undies, I should probably start hanging out with her in my dreams first. The brain needs a coherent narrative. Even though it will force abrupt changes on you, it will not let you enforce abrupt changes on it.