Full disclosure - my background is in operations (think IT) not AI research. So some of this might be wrong.

What’s marketed as AI is something called a large language model. This distinction is important because AI implies intelligence - where as a LLM is something else. At a high level LLMs are using something called “tokens” to break apart natural language into elements that a machine can understand, and then recombining those tokens to “create” something new. When a LLM is creating output it does not know what it is saying - it knows what token statistically comes after the token(s) it has generated already.

So to answer your question. An AI can hallucinate because it does not know the answer - its using advanced math to know that the period goes at the end of the sentence. and not in the middle.

Do you by chance live in a high CoL area?

See you think that - but excel finds a way. We have what are lovingly called the “spreadsheets of doom” which accounting uses to manage all forecasts, and the bits that involve money flows. Did you know you can hook excel into Salesforce and pull all the sales records? A person who thinks her monitor is her computer (she has a Dell laptop) somehow found a way…