Alternating-offer bargaining and common knowledge of rationality

This paper reconsiders Rubinstein's alternating-offer bargaining game with complete information. We define rationalizability and trembling-hand ration alizability (THR) for multi-stage games with observed actions. We show that rationalizability does not exclude perpetual disagreement or delay, but th at THR implies a unique solution. Moreover, this unique solution is the uni que 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 exc luded, but not delay. Furthermore, we cannot use the asymmetric Nash bargai ning solution as an approximation of the alternating-offer bargaining model once the players are boundedly rational ones.