The Token Tax of Epistemic Accuracy: Comparing RAG and Long-Context Architectures for Document-Grounded Generative AI Applications

Retrieval-Augmented Generation (RAG) grounds Large Language Models in external knowledge, yet current evaluations rely on discrete heuristics that suffer from ''epistemic blindness'' - failing to distinguish genuine contextual information extraction from parametric memory recall. To address this, we introduce the Normalized Context Utilization (NCU) metric, leveraging continuous token log-probabilities across zero-shot, oracle, and adversarial conditions to strictly quantify contextual information gain. Evaluating architectures ranging from 1.5B to 72B parameters alongside a proprietary commercial API reveals that for strict factual extraction (without Chain-of-Thought reasoning), traditional scaling laws exhibit extreme diminishing returns: highly efficient Small Language Models (SLMs) match or outperform high-capacity architectures. Furthermore, we demonstrate that ``Prior Dominance'' correlates with model scale and proprietary alignments. The evaluated commercial API not only overrode explicit external evidence in nearly half of adversarial conflicts, but also frequently suffered from systemic confidence collapse (Negative Transfer) when its parametric priors were contradicted. Our findings highlight the structural epistemic advantage and superior contextual adherence of SLMs in strict extraction workflows.

State-of-the-art retrieval-augmented generation (RAG) methods exploit document structures to acquire sufficient evidence, but often incur substantial token costs. To reduce structural-context tokens without compromising high RAG accuracy, we present {\sf VikingRAG}, a directory-aware semantic data management system that tightly integrates semantic and structural access to support structural-context-efficient, evidence-gap-driven multi-round retrieval. To further reduce token overhead of multi-round interaction, we materialize agentic multi-round retrieval traces as experience edges, and reuse these edges for similar queries, avoiding repeated multi-round exploration. To additionally reduce token costs when agentic multi-round retrieval is unnecessary, we introduce an adaptive escalation strategy that answers from one-round experience-augmented retrieval when the evidence is sufficient, and invokes agentic multi-round retrieval only otherwise. Experiments on real datasets show that the base system {\sf VikingRAG} matches high accuracy of state-of-the-art methods while consuming only 11.6%--51.9% of their tokens. With retrieval-trace reuse and adaptive escalation, token costs drop to 5.1%--32.5% while maintaining competitive accuracy and practical document-storage performance, showing the utility of this work for emerging AI knowledge bases.

Large language models that generate step-by-step reasoning traces have achieved strong performance on complex tasks, and extending them to long-context settings has emerged as an important frontier. However, we identify a critical failure mode in this regime: \emph{repetitive copying}, where models extensively copy text from the input into their reasoning traces rather than productively solving the problem. We show that this behavior is pervasive across frontier long-context LLMs and intensifies with context length. By separating each prompt into task-relevant key evidence and irrelevant distractor context, we further show that the root cause is insufficient grounding: models copy from the prompt indiscriminately, and those that fail to focus on key evidence are far more likely to answer incorrectly. Motivated by this diagnosis, we propose GEAR (Grounding Evidence-Aware Reward), a reward shaping method that augments the accuracy signal with a grounding reward for overlap with key evidence and a distractor penalty for overlap with irrelevant context. To enable GEAR on natural-language data, we develop an automated pipeline that constructs evidence-annotated training data from arbitrary documents. We validate GEAR across multiple model scales and benchmarks, showing consistent improvements of up to +4.6 average points over standard RL with accuracy-based rewards, with larger gains at longer contexts, while also reducing repetitive copying and thinking length. Our findings suggest that, even as long-context evaluation shifts from simple retrieval toward complex reasoning, accurate grounding in relevant evidence remains an indispensable capability with substantial room for improvement.