Mitigating Generative AI Hallucinations

Alessandro De Chiara (), Ester Manna () and Shubhranshu Singh ()
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Alessandro De Chiara: Universitat de Barcelona
Ester Manna: Universitat de Barcelona
Shubhranshu Singh: Carey Business School, Johns Hopkins University

No 2025/492, UB School of Economics Working Papers from University of Barcelona School of Economics

Abstract: We theoretically investigate whether AI developers or AI operators should be liable for the harm the AI systems may cause when they hallucinate. We find that the optimal liability framework may vary over time, with the evolution of the AI technology, and that making the AI operators liable can be desirable only if it induces monitoring of the AI systems. We also highlight non-trivial relationships between welfare and reputational concerns, human supervision ability, and the accuracy of the technology. Our results have implications for regulatory design and business strategies.

Keywords: AI hallucinations; AI liability; AI supervision (search for similar items in EconPapers)
JEL-codes: K2 L51 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2025
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