Efficiency in Games with Incomplete Information

Itai Arieli (), Yakov Babichenko (), Atulya Jain and Rann Smorodinsky ()
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Itai Arieli: Technion: Israel Institute of Technology, University of Toronto
Yakov Babichenko: Technion: Israel Institute of Technology
Atulya Jain: ajain@uni-bonn.de
Rann Smorodinsky: Technion: Israel Institute of Technology

No 390, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: We study games with incomplete information and characterize when a feasible outcome is Pareto efficient. Outcomes with excessive randomization are inefficient: generically, the total number of action profiles across states must be strictly less than the sum of the number of players and the number of states. We consider three applications. A cheap talk outcome is efficient only if pure; with state-independent sender payoffs, it is efficient if and only if the sender’s most preferred action is induced with certainty. In natural settings, Bayesian persuasion outcomes are inefficient across many priors. Finally, ranking-based allocation mechanisms are inefficient under mild conditions.

Keywords: Pareto efficiency; Incomplete information; Cheap talk; Bayesian persuasion (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2026-02
New Economics Papers: this item is included in nep-gth and nep-mic
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