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When AI Fails: The Impacts of Hallucinations and Service Errors on Customer Loyalty and Word of Mouth
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DOI：10.1177/00472875261456334.png)
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Abstract
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<jats:p>Tourism companies increasingly adopt artificial intelligence (AI) tools to enhance their efficiency and customer service, but doing so introduces new risks that can affect customer–provider relationships. This study examines generative AI performance (success vs. failure) by distinguishing between regular service mistakes (e.g., context-based inaccuracies) and hallucinations (illogical or fabricated information). Two experimental studies, carried out with travel agencies, compare AI versus human employee performance on the task of providing travel choices. Service failures reduce loyalty and positive word-of-mouth (WOM) intentions, while increasing negative WOM intentions, and these effects are stronger for human employees, such that customers react more intensely to human than to AI failures. Yet in addition, customers react particularly negatively to AI hallucinations. Hallucinations thus must be carefully prevented, because they substantially increase negative WOM and erode customer loyalty. Transparent communications about AI limitations can help mitigate these relational and reputational risks.</jats:p>
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