Generative AI is changing the way small and medium businesses (SMBs) operate. It makes customer service smoother and automates tasks that used to take hours. AI chatbots, in particular, have become a go-to tool for handling customer queries, boosting efficiency, and even increasing sales. But while AI is smart, it’s not perfect.
One major challenge is generative AI hallucinations - when AI confidently delivers responses that sound correct but are actually false. One example is a customer asking your chatbot about a product, and it provides details that don’t exist. Or worse, it gives the wrong return policy, leading to frustration and lost trust. These chatbot hallucinations can hurt your business, create unnecessary headaches, and even open the door to legal trouble.
Let’s break down what gen AI hallucinations are, why they happen, and how you can avoid them.
In its latest Search Quality Rater Guidelines (January 23, 2025), Google defines Generative AI as “a type of machine learning (ML) model that can take what it has learned from the examples it has been provided to create new content, such as text, images, music, and code.”
The content that the majority of chatbots use is text. And because the result is a chat between the user and the AI agent, the generative AI in this example can also be referred to as conversational AI.
In simpler terms, an AI chatbot receives a query from a user, it looks in its knowledge base for answers, and generates that answer back to the user. And most of the time that works fine. Sometimes, though, when the AI is not properly trained, it will force an answer, even if there’s no knowledge to get the answer from.
Generative AI hallucinations happen when an AI system makes up information instead of pulling from real, verified data. AI models don’t “think” like humans; they predict words and sentences based on patterns, not actual knowledge.
For example, your AI chatbot might confidently invent product features, quote the wrong prices, or create non-existent policies. This happens because AI doesn’t “know” facts; it only generates responses based on what seems most probable from its training data.
For big companies, an AI slip-up might not be a big deal. But for SMBs, where customer relationships and reputation are everything, chatbot hallucinations can be costly:
As AI becomes a bigger part of everyday business, accuracy is key to keeping customers happy and avoiding costly mistakes.
The way gen AI hallucinations show up depends on the industry. Here are a few real-world examples:
Each of these scenarios can cost businesses money, time, and customer satisfaction.
Some AI mistakes are more serious than others. When AI-generated responses involve finance, legal issues, or healthcare, they fall into the Your Money or Your Life (YMYL) category. Incorrect advice in these areas could harm a customer’s well-being or financial security.
For example, a chatbot suggesting the wrong medical treatment or investment strategy could lead to real-world consequences. SMBs operating in these sectors need to be extra careful with AI-generated content.
Not all AI chatbots are the same. Aivanti is built to minimize generative AI hallucinations and provide reliable, accurate responses through smart safeguards:
With these protections in place, Aivanti helps SMBs use AI confidently without worrying about misleading their customers.
Generative AI is a game-changer, but gen AI hallucinations can cause real problems. From incorrect product details to legal risks, AI mistakes can cost businesses valuable customers and credibility. The solution? Choosing the right AI chatbot, one that delivers fact-checked, accurate, and business-friendly responses.
Aivanti does just that.
Try Aivanti for free today and see how AI can work smarter for your business!