Reading the Room: Implicit Confusion Encoding in Recurrent World Model States

World Models are appearing as the next major frontier in computer vision. However, their robustness is currently largely unexplored. We identify the phenomenon of hallucination in latent World Models: given a state and an action, the predicted next latent can decode to a scene that never occurs. Because the prediction is statistically ordinary and is fed back autoregressively by the model, the error is both silent and compounding. We study whether such latent hallucination can be detected, localised, and corrected at inference time, on a frozen self-supervised world model in the absence of ground-truth error labels. We introduce Masked Empirical-Bayes Neural Denoising (MEND), a single conditional score network trained by denoising score matching on real transitions, whose score field serves three roles: its magnitude detects hallucination, its per-token field localises it to specific image patches, and it defines an inference-time correction direction. On two navigation environments MEND detects hallucination with an AUROC of up to 0.80 without using actions, exceeding a single-Gaussian density baseline while also localising the error (per-token AUPRC up to 0.87) and correcting it, all from one score field. Our correction reliably reduces single-step latent error and improves predictions. We identify that a part of the error is tangent to the data manifold, hence, we focus on detection and localisation while highlighting promises of the correction.

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.

World models enable agents to learn and plan in imagination, but predictions beyond their experience can become unreliable and mislead decisions. Existing uncertainty estimates derived from predictions can remain overconfident on unfamiliar state-action pairs. We propose the Lucid World Model (LucidWM), which learns doubt from experience and propagates trust through imagination. By integrating Subjective Logic into categorical latent transitions, LucidWM distinguishes predicted outcomes from their evidential support and assigns each transition a degree of doubt. The complement of this doubt defines transition-level trust, which accumulates multiplicatively along imagined trajectories to reweight returns for policy learning and guide action selection. Uncertainty estimation requires no additional parameters or forward passes. Evaluated on four base world models against seventeen uncertainty readouts, LucidWM detects environmental changes and signals uncertainty during action-corrupted rollouts. In a controlled navigation case study, acting on trust reduces the number of steps required to reach the goal from 362 to 190. Fifteen demonstration videos show how LucidWM doubts its dreams and acts on that doubt. Videos are available at https://lucidwm.github.io.