Textual Belief States for World Models: Identifiable Representation Learning Under Strict Mediation

A world model matters to an agent only through the state it constructs. That state must preserve some information, discard other information, and support some future function: prediction, control, planning, memory, grounding, or counterfactual reasoning. This paper treats world-model research as latent state design under sufficiency constraints. We propose a functional taxonomy that groups methods by what their latent state is for, rather than by architecture or application domain: predictive embedding, recurrent belief state, object/causal structure, latent action interface, grounded planning interface, and memory substrate. These roles expose distinctions that architecture-based groupings hide, including the gap between predictive sufficiency and control sufficiency, and the gap between passive video prediction and counterfactual action modeling. The taxonomy supports an evaluation framework that judges a model by the sufficiency constraint its latent state was built to satisfy. We compare methods along seven axes: representation, prediction, planning, controllability, causal/counterfactual support, memory, and uncertainty. We use the resulting matrix as a diagnostic for what a latent state preserves, discards, and enables. The conclusion that follows is that an actionable world model is the one whose state construction matches the task, not the one that preserves the most information.

Large language models achieve strong performance in language generation and knowledge-intensive tasks, yet remain limited in settings requiring causal reasoning, persistent state tracking, and long-horizon planning. We argue that these limitations may arise from an objective-level mismatch between sequence prediction and reasoning over latent environment dynamics. To formalize this distinction, we introduce Latent Dynamics Inference (LDI), a conceptual perspective that interprets language and multimodal observations as partial evidence of underlying transition dynamics. To empirically investigate this perspective, we introduce Flux, a sequential reasoning environment specified entirely through natural-language rules. As a proof-of-concept case study, the rules are first compiled into an explicit state-transition simulator, illustrating that structured latent transition dynamics can, in some cases, be operationally extracted from textual rule descriptions. This enables a controlled comparison between the LLMs operating purely over textual observations and reinforcement-learning agents trained directly within the extracted latent state space. Within this case study, agents operating with explicit access to the latent state space exhibit substantially more stable behavior in long-horizon gameplay, achieving an aggregate win rate of approximately 79% versus 11% for LLMs. Qualitative analysis further reveals failure modes consistent with unstable persistent state tracking, including invalid actions, state-tracking errors, and short-horizon reasoning failures. The complete implementation of the Flux environment available at https://github.com/FeisalAlaswad/FLUX-RL-Agent Within the evaluated setting, these results suggest that strong sequence prediction alone may struggle to support robust long-horizon dynamic reasoning without mechanisms for persistent state tracking and transition modeling

World models are increasingly used to support planning in agents by predicting how environment states evolve in response to agent actions. Yet fluent next-state predictions can still omit task-critical facts, corrupt product attributes, or apply incorrect transition rules. To address such systematic prediction errors, we introduce MemWM, a memory-augmented text-based world model. MemWM uses world memory, a curated memory bank of transition rules, state caches, and hard-to-predict facts, to condition next-state imagination. We evaluate factual state preservation with Structured State Fidelity (SSF), which scores predicted states through benchmark-specific facts and fields. Compared with SFT, memory-augmented training improves SSF by up to 206.3%. In the full planning setting, we keep the policy model frozen and provide policy-side world skill: retrieved task-level skills and step-wise corrective guidance for action selection. Across ALFWorld, WebShop, and ScienceWorld, memory-augmented agents improve downstream success over an SFT-trained world-model agent, with up to a 65.4% relative gain. Sensitivity analyses further show that retrieved memory improves task success and efficiency under different memory and action-budget settings.