I am astounded that people would question citing an arxiv paper. If you get an idea from somewhere else, you cite it. This doesn't even have to do with the archive. I have on multiple occasions read papers where the author wrote a proof and then cited "private communications" with another mathematician as the source. In a business where ideas are ideas, you should always cite the source. Anything else is extremely di…
At least in biology, a lot of journals have been cracking down on "personal/private communication" citations lately -- the point of a citation isn't just to give credit, but to tell the reader where to find the info, and chatting with your friend isn't a realistic option for that. If it is unpublished, and is important enough to be cited, then you should make the friend a co-author and include the info in your paper.…
If I'm writing writing a paper about my ideas, it would be unethical to "make my friend a co-author" if my friend didn't contribute to those ideas.
Yes, it would be strongly preferable to tell readers where they can find the info you are citing. But if that info is unpublished, then that's life.