CascadeLedger: Counterfactual Auditing of Information and Resource Integrity in LLM Cascades

Large language model (LLM) agents can now carry out long-horizon technical workflows involving complex tool use, code execution, file edits, and generated artifacts. As agents do more work faster, the productivity bottleneck shifts from producing outputs to auditing whether those outputs are correct and trustworthy. Agent observability systems make fine-grained execution events visible, but visibility alone still leaves reviewers to reconstruct which actions, artifacts, and validation steps matter for a particular conclusion. We introduce LEDGER - Layered Evidence and Decision Graphs for Execution Review, a tracing and review system that builds layered trace graphs over observed agent sessions. LEDGER preserves Trace Records while grouping them into Evidence Nodes and Workflow Nodes, representing artifacts as evidence anchors, and adding typed semantic edges that connect claims to supporting actions, artifacts, and checks. Through data-analysis and coding examples, we show how the resulting traces expose workflow decisions, artifact lineage, repair steps, validation coverage, and claim-support paths for evidence-centered audit.

Inference cascades cut cost by answering most queries with a cheap model and escalating a hard tail to a frontier model that acts as verifier. A natural extension closes the loop: fine-tune the cheap student on the verifier's rejections so the escalation rate, and cost, fall each round. We measure this loop on real LLMs and report four findings. First, the verifier's blind spot, the fraction of the student's wrong answers it accepts, is large and moves adversarially: it grows with student capability ($β$ from 0.12 to 0.55 as the student scales 0.5B to 32B) and shrinks with verifier capability, so it is worst in the cheap-student, cheap-verifier regime cascades exist to create. Second, buying it away returns the saving: a frontier verifier drives $β$ to about 0.05 but then escalates on 46% of hard-MATH queries against a 39% true error rate, paying the frontier price on nearly half of all traffic. Third, naive corrective fine-tuning on the verifier-rejected tail does not improve the small student but degrades and ultimately collapses it, across every teacher we tried (cross-family and same-family), so at this scale the self-improving loop is self-defeating. Fourth, through all of this the cascade's own dashboard, every metric computed through the verifier, reads a flat 3% error while true delivered error swings up to 32%: the system is blind to its own degradation by construction. We then give the theory that explains the blindness, a two-population conservation law, $ε_\infty \lesssim q_0 β_0$, under which every in-loop metric improves while true quality does not, and a synthetic study that validates the mechanism. The practical conclusion: the reliability of a self-improving cascade cannot be read from any metric computed through its own verifier.

Large language model (LLM) cascades reduce inference cost by routing easy queries to a small model and deferring hard queries to a larger one. Production cascades govern this deferral through a confidence threshold, but LLM confidence scores are miscalibrated, the threshold must be tuned per model pair and per domain, and no setting yields a formal bound on cascade accuracy. We introduce Conformal Cascade (CC), a multi-tier inference framework that uses conformal prediction set size as the deferral rule: accept when the calibrated set collapses to a single answer, defer otherwise. The procedure delivers a distribution-free, finite-sample accuracy guarantee. By a per-tier union bound, the prediction set at the accepting tier covers the correct answer with probability at least $1 - Kα$ for any user-specified $α$; under a selection-preservation condition (consistent with, but not strictly implied by, our marginal coverage results), the bound tightens to $1 - α$. We further characterise expected cascade cost as an explicit function of $α$ and the calibration-set acceptance rate. Across 18 multiple-choice benchmarks spanning science, medicine, commonsense, and standardized exams, evaluated on two-tier cascades drawn from four open-weight model families, CC strictly improves over the strongest calibration-tuned heuristic cascade on the majority of family--benchmark pairs, with the largest gains on reasoning-heavy benchmarks where majority vote is unreliable; on easier benchmarks the cascade commits the vast majority of queries to the small model at no accuracy cost. Extension to open-ended generation requires an answer-clustering step that we leave for future work. The method requires no model training and only black-box API access.