Noisy truth beats precise lies: Blockchain-enabled information equilibria

Truth-telling is essential to efficient allocation of resources but is often undermined by strategic misreporting. We show how verifiably fair randomness, complemented by other blockchain functionalities, can lead to truth-telling at the cost of introduction of random noise in information transmission. The optimal trade-off between truthfulness and precision yields equilibria that outperform those attainable without randomization in information transmission. We characterize two classes of information equilibria: information designated to directly trigger value transfer via decentralized consensus (“enforcive information”), and strategic information sharing between Bayesian-rational decision makers (“advisive information”). Our findings demonstrate usefulness of randomized transmission in broad financial settings and illustrate the benefits of blockchain technology for optimal mechanism design.

BLS blockchain paper November 18.pdf

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