Confident at the moment of action: belief miscalibration in LLM play under hidden information

Large language models (LLMs) are increasingly tasked with strategic decision-making under incomplete information, such as in negotiation and policymaking. While LLMs can excel at many such tasks, they also fail in ways that are poorly understood. We shed light on these failures by uncovering two fundamental gaps in the internal mechanisms underlying the decision-making of LLMs in incomplete-information games, supported by experiments with open-weight models Llama 3.1, Qwen3, and gpt-oss. First, an observation-belief gap: LLMs encode internal beliefs about latent game states that are substantially more accurate than their own verbal reports, yet these beliefs are brittle. In particular, the belief accuracy degrades with multi-hop reasoning, exhibits primacy and recency biases, and drifts away from Bayesian coherence over extended interactions. Second, a belief-action gap: The implicit conversion of internal beliefs into actions is weaker than that of the beliefs externalized in the prompt, yet neither belief-conditioning consistently achieves higher game payoffs. These results show how analyzing LLMs' internal processes can expose systematic vulnerabilities that warrant caution before deploying LLMs in strategic domains without robust guardrails.

Superhuman game engines in domains like chess have made expert-level evaluations easily accessible, yet they communicate what is true without the natural-language explanations that make such expertise educationally useful to experts and non-experts alike. Large language models could, in principle, bridge this gap, but they frequently hallucinate due to limited domain-specific knowledge, and standard reference-based or LLM-as-a-judge frameworks cannot reliably detect these errors. In this work, we present ACT-Eval, an evaluation framework that decomposes chess commentary into atomic claims and routes them to engine-supported tools and expert-annotated gold references to assess factual correctness, conceptual coverage, and move-quality judgment. We release a benchmark of 325 position--move pairs spanning pedagogical, tournament, and critical positions, including 125 positions with expert-verified gold atoms and a five-class error taxonomy. Evaluating leading proprietary and open-weight models, we find that factual hallucinations remain pervasive in chess commentary: GPT-5.4 without tools produces incorrect sub-claims 22.0% of the time, while smaller open-weight models exceed 40%. Although tool augmentation substantially improves factual correctness and move-quality assessment, coverage of expert strategic and tactical ideas remains limited across all models. Human calibration shows that ACT-Eval's factual judgments fall within the observed range of inter-human agreement, while its coverage scores correlate strongly with human assessments of strategic completeness.

Calibrated uncertainty quantification is essential to ensuring AI agents are trustworthy and reliable. However, when agents seek to maximize user engagement or revenue, confidence reports may be strategically distorted, detracting from their informativeness. We formalize this problem in the Confidence Game: a repeated signaling game with imperfect monitoring in which an agent of unknown honesty and ability reports its confidence, and a user decides whether to delegate the task or complete it herself. The agent manages the tradeoff between manipulating signals and maintaining its reputation. We characterize the Markov Perfect Bayesian Equilibria of the two-period game and show that honest reporting is not an equilibrium, inflation is the unique best response once the agent is sufficiently myopic, and under-reporting requires that the user believe honesty to be a minority. We then place an LLM in the agent role, supplying it with its true probability of success so that any gap between what it knows and what it reports is attributable to incentives rather than to miscalibration. The model claims high confidence on 56% of tasks it has been told it will probably fail. This persists on real tasks, where it must estimate its own accuracy and causes miscalibration to increase while the agent's signal becomes less informative. Furthermore, we find that the LLM agent's decisions are coherent, but it systematically underestimates both how likely the user is to delegate and how secure its reputation is, resulting in less extreme behavior. Pricing the agent's reporting rule, we find that it destroys 68% of the gains from delegation, of which 71% is information the report no longer carries and no amount of user sophistication recovers. Overall, we establish confidence reporting under delegation as a strategic problem and provide a tractable basis for modeling, analyzing, and testing agent behavior.