Robin Hanson nails it in a recent post to his fantastic blog, Overcoming Bias:
One way to avoid having a social norm to apply to oneself is to prevent wide knowledge that the norm applies to your situation. It is all right if some folks know, as long as outsider observers don’t know. People don’t want to anyone to be able to prove they knowingly failed to enforce a norm.
This (at least in part) drives the desire for privacy; of course, it is also a social norm to restrict certain activities to private settings.
Even understanding what someone means when they smile is a complicated process we take for granted; the complexities of socialization come naturally to us after millions of years of evolution.
Of course, there are evolutionary advantages to being able to work around social norms (e.g., a male produces more genetic offspring if he cheats on an ostensibly monogamous female partner). This results in hypocrisy (again from Overcoming Bias):
When folks expect to be able to evade a norm, they don’t mind making that norm stronger. This lets them sound more pro-social, while actually giving themselves an advantage over folks who can’t evade as easily. And once norms get overly strong, there is more intuitive support for allowing evasion, via attitudes supporting letting people keep their “privacy.”
I submit this as a solid launch pad for answering the question, “What is public, what is private?”
Public becomes the realm of activities and behaviors which help us cooperate socially to increase survival, and private being the realm of activities primarily focused on self-interest and individualism.