Randomization and Efficiency under Incomplete Information

Itai Arieli, Yakov Babichenko, Atulya Jain and Rann Smorodinsky

Papers from arXiv.org

Abstract: We study ex-ante Pareto efficiency of feasible outcomes in games with incomplete information. Our main observation is that excessive randomization leads to inefficiency. With a nonatomic prior, generically, efficient outcomes are pure almost surely. In finite state spaces, the restriction is weaker: generically, the total number of actions used across states must be strictly less than the sum of the number of players and states. We apply these results to three environments. In an allocation problem without transfers, the welfare-maximizing incentive-compatible outcome is inefficient. In cheap talk, generically, an outcome is efficient only if it is pure; with state-independent sender payoffs, it is efficient if and only if the sender's most preferred action is induced with certainty. In Bayesian persuasion with one safe action and several risky actions, outcomes are generically inefficient across broad sets of priors and receiver preferences.

Date: 2025-10, Revised 2026-10
New Economics Papers: this item is included in nep-des, nep-gth and nep-mic
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