Grounded Iterative Language Planning: How Parameterized World Models Reduce Hallucination Propagation in LLM Agents

World models for language agents come in two useful forms.

An agent-based world model calls an LLM API and reasons flexibly in language, but its errors appear as hallucinated state changes that are hard to score with ordinary regression losses.

A parameterized world model is a trained transition predictor; its errors are easier to measure with quantities such as NodeMSE, delta accuracy, and validity accuracy, but it is usually weaker as a standalone planner.

We compare these two families on four graph-structured planning benchmarks and introduce operational hallucination metrics for the agent-based case.

The comparison motivates \textbf{Grounded Iterative Language Planning} (GILP), which trains only a small parameterized backbone and combines it with API-based agent reasoning.

The backbone supplies valid actions, predicted state deltas, risk, and value; the LLM drafts an action and imagined delta; and a consistency gate asks for revision when the two disagree.

On real GPT-4o-mini calls, GILP reduces hallucinated-state rate from 0.176 to 0.035.

In calibrated simulator ablations, it raises success from 0.668 to 0.838 while adding only ~22% extra LLM calls.