You are right and the idea of LLMs as lossy compression has lots of problems in general (LLMs are a statistical model, a function approximating the data generating process).

Compression artifacts (which are deterministic distortions in reconstruction) are not the same as hallucinations (plausible samples from a generative model; even when greedy, this is still sampling from the conditional distribution). A better identification is with super-resolution. If we use a generative model, the result will be clearer than a normal blotchy resize but a lot of details about the image will have changed as the model provides its best guesses at what the missing information could have been. LLMs aren't meant to reconstruct a source even though we can attempt to sample their distribution for snippets that are reasonable facsimiles from the original data.

An LLM provides a way to compute the probability of given strings. Once paired with entropy coding, on-line learning on the target data allows us to arrive at the correct MDL based lossless compression view of LLMs.

LLM confabulations might as well be gradual in the latent space. I don’t think lossy is synonymous to perceptual and the high frequency components rather easily translate to less popular data.

More disagreeing with no meaningful value to the conversation. This is you. Constantly.

Not really. The whole "inference errors will always compound" idea was popular in GPT-3.5 days, and it seems like a lot of people just never updated their knowledge since.

It was quickly discovered that LLMs are capable of re-checking their own solutions if prompted - and, with the right prompts, are capable of spotting and correcting their own errors at a significantly-greater-than-chance rate. They just don't do it unprompted.

Eventually, it was found that reasoning RLVR consistently gets LLMs to check themselves and backtrack. It was also confirmed that this latent "error detection and correction" capability is present even at base model level, but is almost never exposed - not in base models and not in non-reasoning instruct-tuned LLMs.

The hypothesis I subscribe to is that any LLM has a strong "character self-consistency drive". This makes it reluctant to say "wait, no, maybe I was wrong just now", even if latent awareness of "past reasoning look sketchy as fuck" is already present within the LLM. Reasoning RLVR encourages going against that drive and utilizing those latent error-correction capabilities.