Why Do LLMs Struggle in Strategic Play? Broken Links Between Observations, Beliefs, and Actions

arXiv:2605.00226v1 Announce Type: new Abstract: Large language models (LLMs) are increasingly tasked with strategic decision-making under incomplete information, such as in negotiation and policymaking. While LLMs can excel at many such tasks, they also fail in ways that are poorly understood. We shed light on these failures by uncovering two fundamental gaps in the internal mechanisms underlying the decision-making of LLMs in incomplete-information games, supported by experiments with open-weig...