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CS Professional · Artificial Intelligence, Data Analytics and Cyber Security - Laws and Practice · Artificial Intelligence - Introduction and Basics

Aarav Retail uses a generative AI tool that, after being trained on large volumes of text, drafts a vendor agreement when given a prompt. The company secretary reviews the output and notices a clause citing a judgment that does not exist. Which statement best explains this phenomenon and the correct professional response?

The fabricated judgment is an AI hallucination: the generative model produced plausible-sounding but false content. A company secretary should verify all citations and clauses against authentic legal sources before relying on the draft. It is not a data breach or a reliable output.

  1. AIt is a hallucination, where the model produces plausible but fabricated content, so the output must be verified against authentic sources before relianceCorrect
  2. BIt is a data breach, so the company must immediately notify the regulator about the clause
  3. CIt is an overfitting-free output, so the citation can be treated as reliable
  4. DIt is a deliberate encryption feature of the model, so no action is required

Explanation

Generative models predict likely text and can produce fluent but false content, called hallucination. A professional must verify citations against authentic sources. A fabricated citation is not itself a data breach, and treating it as reliable would be negligent.

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