RATIONAL BEHAVIOR IN EXTENSIVE-FORM GAMES

It is argued that subgame perfect equilibrium behaviour is not an inevitable consequence of common belief of rationality among players in non-cooperative extensive-form games. The argument centres around a particular extensive-form game with perfect information. In the context of this game it is argued that if rationality is not common belief throughout every play of the game, then it can be perfectly rational to play contrary to subgame perfection, even if rationality is common belief at the beginning of the game. It is then shown that it is impossible for rationality to be common belief throughout every play of the game.