Irreversible Failure Reverses the Value of Information
Nicholas H. Kirk
TL;DR
This paper shows that in dynamic games with hidden states and absorbing failure, greater information precision can increase the likelihood of irreversible collapse when equilibria operate at the viability boundary. It introduces a limit-viability criterion and models opacity as Blackwell garbling, demonstrating that survival values become locally concave in beliefs near failure cliffs. Consequently, strategic opacity—choosing a less informative information structure—can be the optimal means to sustain equilibria, even when all agents update Bayes-fully. The results imply that irreversibility generates an endogenous demand for opacity, with implications for default, revolts, and institutional fragility where information control can be a primitive stability mechanism.
Abstract
We study dynamic games with hidden states and absorbing failure, where belief-driven actions can trigger irreversible collapse. In such environments, equilibria that sustain activity generically operate at the boundary of viability. We show that this geometry endogenously reverses the value of information: greater informational precision increases the probability of collapse on every finite horizon. We formalize this mechanism through a limit-viability criterion, and model opacity as a strategic choice of the information structure via Blackwell garbling. When failure is absorbing, survival values become locally concave in beliefs, implying that transparency destroys equilibrium viability while sufficient opacity restores it. In an extended game where agents choose the information structure ex ante, strictly positive opacity is necessary for equilibrium survival. The results identify irreversible failure--not coordination, misspecification, or ambiguity--as a primitive force generating an endogenous demand for opacity in dynamic games.