Tootfinder

Agentic AI and Hallucinations
Engin Iyidogan, Ali I. Ozkes
https://arxiv.org/abs/2507.19183 https://arxiv.org/pdf/2507.19183…

Agentic AI and Hallucinations
We model a competitive market where AI agents buy answers from upstream generative models and resell them to users who differ in how much they value accuracy and in how much they fear hallucinations. Agents can privately exert effort for costly verification to lower hallucination risks. Since interactions halt in the event of a hallucination, the threat of losing future rents disciplines effort. A unique reputational equilibrium exists under nontrivial discounting. The equilibrium effort, and t…