Predictable Compression Failures: Why Language Models Actually Hallucinate

Abstract

Large language models perform near-Bayesian inference yet violate permutation invariance on exchangeable data. We resolve this by showing transformers minimize expected conditional description length (cross-entropy) over orderings, $\mathbb{E}_π[\ell(Y \mid Γ_π(X))]$, which admits a Kolmogorov-complexity interpretation up to additive constants, rather than the permutation-invariant description length $\ell(Y \mid X)$. This makes them Bayesian in expectation, not in realization. We derive (i) a Quantified Martingale Violation bound showing order-induced deviations scale as $O(\log n)$ with constants; (ii) the Expectation-level Decompression Law linking information budgets to reliability for Bernoulli predicates; and (iii) deployable planners (B2T/RoH/ISR) for answer/abstain decisions. Empirically, permutation dispersion follows $a+b\ln n$ (Qwen2-7B $b \approx 0.377$, Llama-3.1-8B $b \approx 0.147$); permutation mixtures improve ground-truth likelihood/accuracy; and randomized dose-response shows hallucinations drop by $\sim 0.13$ per additional nat. A pre-specified audit with a fixed ISR=1.0 achieves near-0\% hallucinations via calibrated refusal at 24\% abstention. The framework turns hallucinations into predictable compression failures and enables principled information budgeting.