Distilling Bayesian Belief States into Language Models for Auditable Negotiation

Negotiation is a central mechanism of economic exchange, shaping markets, procurement, labor agreements, and resource allocation. It is also a canonical testbed for agentic language models, requiring multi-turn interaction under hidden preferences, strategic communication, and binding constraints. These properties make negotiation hard to evaluate: unlike math or code, it has no intrinsic verifier. Existing LLM negotiation evaluations rely on LLM-vs.-LLM interaction or aggregate outcomes such as deal rate, leaving failures opaque. We introduce Terms-Bench, short for Testbed for Economic Reasoning in Multi-turn Strategy, a Bayesian-game framework that makes the environment itself the verifier by specifying the counterpart's latent type, policy, and payoff structure. We instantiate it in bilateral price negotiation, where the counterpart's private state and simulator policy are hidden from the agent but observable to the evaluator. This turns the counterpart from a black-box opponent into a diagnostic instrument, enabling agent-attributable failure analysis and oracle-reference optimality gaps. Evaluating 13 LLM agents spanning frontier systems from major providers, Terms-Bench turns negotiation evaluation from aggregate ranking into actionable diagnosis: where agents fail, why they fail, and what to strengthen. Empirically, frontier models saturate deal rate yet diverge in surplus extraction, cue use, belief calibration, and compliance, revealing agent-specific bargaining bottlenecks masked by prior benchmarks.

LLM agents in social simulation revise their opinions implicitly, in context: how open an agent is to persuasion can neither be specified nor verified, and collective outcomes inherit the model's training prior. We introduce Bayesian Chronicle Agents (BCA), a minimal belief layer separating what an agent believes from how it speaks. Each stance is a probability, updated by one Bayesian step per utterance heard. A single prior-strength parameter $κ$ encodes stubbornness, modeled after its role in Friedkin--Johnsen (FJ) opinion dynamics. We then sweep this parameter to yield three canonical regimes of opinion dynamics on demand (consensus, persistent disagreement, committed-minority influence), with persistent disagreement matching the FJ closed-form fixed points at $R^2\!=\!0.93$--$0.99$. We further show that prescribed $κ$ remains recoverable after the language round-trip, with perfect rank-order recovery across all four models. Explicit belief also makes simulation auditable: the layer surfaces systematic per-model stance biases that end-to-end simulation would silently absorb.

Large language models (LLMs) still struggle with strategic persuasion, largely because existing approaches either neglect information asymmetry or rely on unrealistic pre-commitment assumptions. We introduce a type-induced commitment-communication mechanism that grounds Bayesian Persuasion (BP) in natural language dialogue without pre-commitment: the persuader narrates their potential types (e.g., honest vs. dishonest) to dynamically construct an information schema, enabling the persuadee to perform Bayesian belief updates within the conversation itself. We implement two variants: Semi-Formal-Natural-Language (SFNL) and Fully-Natural-Language (FNL), evaluating them against strong baselines across multiple LLMs and human judges. BP strategies consistently outperform baselines: SFNL excels in logical credibility, while FNL shows superior robustness and emotional resonance. We verify that gains stem from genuine Bayesian reasoning rather than superficial formatting, and we further show that supervised fine-tuning enables small models to match the persuasive performance of much larger ones.