Testing the cognitive limits of large language models

Key takeaways

• When posed with a logical puzzle that demands reasoning about the knowledge of others and about counterfactuals, large language models (LLMs) display a distinctive and revealing pattern of failure.
• The LLM performs flawlessly when presented with the original wording of the puzzle available on the internet but performs poorly when incidental details are changed, suggestive of a lack of true understanding of the underlying logic.
• Our findings do not detract from the considerable progress in central bank applications of machine learning to data management, macro analysis and regulation/supervision. They do, however, suggest that caution should be exercised in deploying LLMs in contexts that demand rigorous reasoning in economic analysis.