AI hallucinations in customer experience (CX) can severely damage brand trust and incur regulatory fines. Issues often stem from outdated or inconsistent data, highlighting the importance of knowledge base integrity and RAG governance over model sophistication. McKinsey notes that while nearly all companies use AI, only 1% are confident in their accuracy. Hallucinations can lead to lost revenue and customer churn, as evidenced by retail, public sector, and travel industries suffering from incorrect responses. Organizations are increasingly treating hallucinations as governance issues, implementing robust data management to enhance trust. Methods include building unified profiles, ensuring data freshness, and leveraging smaller, tailored models to reduce misinformation risks. Additionally, adopting RAG governance and the Model Context Protocol (MCP) can guide AI interactions and improve compliance. Continuous testing, monitoring, and human oversight are essential for minimizing errors. Companies prioritizing data integrity and systematic governance can transform AI from a liability into a valuable asset.
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