Belief or Circuitry? Causal Evidence for In-Context Graph Learning

Pretrained large language models (LLMs) have demonstrated in-context learning (ICL) capabilities for numerical inference over sequences serialized as text. Prior work has identified and characterized this form of numerical inference primarily through output-level evaluations such as prediction error. However, how numerical information is organized within LLM representations remains much less understood. To study this internal organization, we adopt a graph signal processing perspective in which attention induces a weighted graph over tokens, while token hidden states define signals on its nodes. Quantitative graph-spectral diagnostics and qualitative token-graph visualizations reveal that representations become more clearly differentiated by input dynamical complexity as context length increases. Simpler inputs produce attention-induced token graphs with stronger global connectivity and smoother, spectrally concentrated hidden-state signals, whereas more complex inputs produce more localized graphs and hidden-state signals with broader spectral support and greater high-frequency energy. Together, these findings point to systematic, context-dependent internal signatures associated with numerical ICL that are conserved across model families.

Because large language models (LLMs) are impressively successful in predicting text, it appears that they must have access to a 'world model' representing causal and definitional structure. However, the dominant formalisms of modern causal inference -- Judea Pearl's interventionist approach and the Neyman-Rubin potential outcomes framework -- struggle to illuminate how LLMs learn causal structure. I resolve this puzzle by arguing that LLMs employ a specific inductive approach based on a difference-making logic -- sometimes called variational induction. I demonstrate how central aspects of this logic are realized during training, where LLMs require enormous amounts of text data from a wide range of contexts to identify difference- and indifference-makers within word sequences. Furthermore, I analyze specific architectural features of LLMs -- such as token embeddings and self-attention -- to determine their roles in variational induction. The difference-making logic of LLMs fundamentally parallels the experimental method, where causal relations are derived by systematically varying individual circumstances to determine their influence on a phenomenon.

Large language models (LLMs) trained on next-token prediction exhibit remarkable in-context learning (ICL) abilities, yet the representations that support ICL remain poorly understood. We consider such representations in a controlled setting: prompting LLMs with data emitted from hidden Markov models (HMMs) and probing for the corresponding belief state -- the posterior distribution over the HMM's hidden states given the observed token history. Across six open-source LLMs prompted with data from 40 HMMs selected for non-trivial belief structure, we find that belief states are linearly decodable from residual stream activations, with peak probe $R^2$-values from 0.83-0.99 across HMM and LLM combinations, ranging from early to late layers. To establish functional relevance, we intervene directly on the probe-identified subspace via patching and steering, resulting in downstream prediction quality on the order of the untampered model, while controls degrade performance substantially. Together, these results provide representation-level evidence that ICL in open-source LLMs approximates optimal Bayesian prediction over a context-inferred generative model. More broadly, our findings extend prior results linking input-distribution structure to activation geometry: from toy networks trained explicitly on HMM data to production-scale LLMs.