Hallucination Rate as a Product Metric

Key Concepts

• 1In commerce, a hallucination — an invented product, price, policy, or availability — is not a quirk but a trust and potentially legal failure, so its rate is a first-class product metric
• 2Grounding via RAG reduces but doesn't eliminate hallucination; the agent can still misstate a grounded fact or fabricate when context is thin
• 3Measuring hallucination requires ground truth: comparing agent claims against the authoritative catalog, pricing, and policy systems, often via sampling and human review
• 4Not all hallucinations are equal: a wrong product description is minor; a fabricated price, promise, or policy the user relies on is severe
• 5Guardrails help: constraining the agent to only state facts from authoritative sources and refusing to answer when ungrounded lowers the rate
• 6Hallucination interacts with helpfulness: an agent tuned to always answer hallucinates more; one tuned to say 'I don't know' is safer but can feel less capable — a real tradeoff
• 7Track hallucination alongside conversion and satisfaction, because reducing it sometimes costs perceived helpfulness, and the balance is a product decision

Why It Matters for PMs

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