This research treats LLM hallucinations as an engineering product attribute requiring domain-specific regulation, especially in critical fields.

• Proposes establishing maximum hallucination standards for different domains
• Demonstrates that regulatory limits improve net welfare when users have imperfect awareness of hallucination risks
• Shows how domain-specific standards can reduce misinformation externalities
• Frameworks modeled after existing engineering safety standards

In medical contexts, this approach is crucial as hallucinated content can directly impact patient safety, treatment decisions, and clinical outcomes—requiring significantly stricter standards than general-purpose applications.

Maximum Hallucination Standards for Domain-Specific Large Language Models