How do I gracefully handle players who know more about inner workings of the setting than the characters?

A lovley problem that both WIzard of the Coast's D&D and Pathfinder's Paizo have in common is that a lot of rules and inner working of settings are revealed, and can be easily read by players. This is because the rules are laid out for players to create characters, and settings are for setting the tone for the game (it is easier to setup a game in familiar setting).<br><br>I would argue that it can work for both settings, provided that players don't abuse their knowledge. But in a setting of my own creation it can become a problem.<br><br>In a setting of my own creation I have to set up rules of magic, set up the lore, and really sell my players on this world. But because I have to discuss all of these things with the players before the game starts, it makes the setting and game predictable.<br><br>Even worse, I had a problem with players who used their knowledge of the setting to "exploit" it. For example, once there was a plot involving a killer who was using magic and being chased by the authorities. But one of the players had read a draft of the setting book, and knew how the killer's magic worked. Not only it broke the immersion for the player, but it also gave them unfair advantage in solving the mystery.<br><br>But how do I gracefully handle the fact that players know more about the lore of the setting as the characters do?<br><br>___<br>Edit: I didn't know that this was a known problem, so thank you all for helping me to see how big of an issue this is. Also, I had no idea that there are people who separare setting, lore and world building into different things. So, thank you for educating me on this.<br><br>I have to admit that my setting is mostly built to facilitate the story I want to tell. I hadn't thought about the fact that I need to build a setting that my players can engage with. <br><br>I'll be honest and say that my The DM style relies heavily on rules and can be predictable and a bit formulaic. I use random events to spice up events, and to allow players to explore the setting. I also rely on combat a lot (because combat is the best way to tell an action story in my opinion).<br><br>In summary, I didn't consider that setting and world building can be used to facilitate player engagement. I'll be honest and say that I'm more of a storyteller and game master, then a world builder. I even considered world building to be a form of cheating, since it gives me as the game master an unfair level of control over the game.<br><br>I think I'm going to challenge myself to build the setting before I set the story or lore. I already have some ideas about the setting, but I think I need to expand them. I also need to make the setting more immersive, so that players can engage with it on their own terms.<br><br>Once again, thank you all for your advice and for making me see things from a different perspective.<br><br>___<br>TLDR: As a world builder and GM I have a problem with my players knowing more about the world and lore than their characters, because they have to read the setting book. How do gracefully handle that discrepancy?