Alternating-Offer Bargaining and Common Knowledge of Rationality |
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Authors: | Vannetelbosch Vincent J |
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Institution: | (1) CORE, University of Louvain, voie du Roman Pays 34, B-1348 Louvain-la-Neuve, Belgium;(2) IEP, Basque Country University, avda. Lehendakari Aguirre 83, E-48015 Bilbao, Spain |
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Abstract: | This paper reconsiders Rubinstein's alternating-offer bargaining game with complete information. We define rationalizability and trembling- hand rationalizability (THR) for multi-stage games with observed actions. We show that rationalizability does not exclude perpetual disagreement or delay, but that THR implies a unique solution. Moreover, this unique solution is the unique subgame perfect equilibrium (SPE). Also, we reconsider an extension of Rubinstein's game where a smallest money unit is introduced: THR rules out the non-uniqueness of SPE in some particular case. Finally, we investigate the assumption of boundedly rational players. Perpetual disagreement is excluded, but not delay. Furthermore, we cannot use the asymmetric Nash bargaining solution as an approximation of the alternating-offer bargaining model once the players are boundedly rational ones. |
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Keywords: | Bargaining Alternating-offer Rationalizability Bounded rationality Money unit |
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