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Mitigating Generative AI Hallucinations

Author

Listed:
  • Alessandro De Chiara

    (Universitat de Barcelona)

  • Ester Manna

    (Universitat de Barcelona)

  • Shubhranshu Singh

    (Carey Business School, Johns Hopkins University)

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.

Suggested Citation

  • Alessandro De Chiara & Ester Manna & Shubhranshu Singh, 2025. "Mitigating Generative AI Hallucinations," UB School of Economics Working Papers 2025/492, University of Barcelona School of Economics.
    • Handle: RePEc:ewp:wpaper:492web
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    File URL: https://hdl.handle.net/2445/224749
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    JEL classification:

    • K2 - Law and Economics - - Regulation and Business Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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