Even if we're reusing neuropsych terms, the behavior is far more similar to confabulation (making up shit you don't know) than hallucination (perceiving things that aren't there)
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Confabulation occurs when individuals mistakenly recall false information, without intending to deceive. Patients with amnesia often fill in the gaps with confabulation. I myself did it in the past to hide DID-related amnesia.

AI have memory and makes statements, but no intentions. It fits.
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