In 1987, I wrote a paper (Binmore [14]) that questioned the rationality of the backward induction principle in finite games of perfect information. Since that time, a small literature has grown up in which Antonelli and Bicchieri [1], Ben-Porath [9], Bicchieri [10,11], Bonanno [21,22], Pettit...

In the economic modeling of bargaining, outside options have often been naively treated by taking them as the disagreement payoffs in an application of the Nash bargaining solution. This paper contrasts this method of predicting outcomes with that obtained from an analysis of optimal strategic...