arXiv:2506.06382v1 Announce Type: cross Abstract: This paper explains \textbf{why it is impossible to create large language models that do not hallucinate and what are the trade-offs we should be looking for}. It presents a formal \textbf{impossibility theorem} demonstrating that no inference mechanism can simultaneously satisfy four fundamental properties: \textbf{truthful (non-hallucinatory) generation, semantic information conservation, relevant knowledge revelation, and knowledge-constrained optimality}. By modeling LLM inference as an \textbf{auction of ideas} where neural components compete to contribute to responses, we prove the impossibility using the Green-Laffont theorem. That mathematical framework provides a rigorous foundation for understanding the nature of inference process, with implications for model architecture, training objectives, and evaluation methods.