I don't actually think either term is more precise than the other when we're talking about LLMs, which aren't human brains. It doesn't have either memory or perception in a way that we do.
It's not perceiving reality incorrectly, it's presenting wholesale fiction as fact both coherently and with absolute confidence. It even forges supporting documentation ad-hoc.
GPT is not a poor schizophrenic suffering from delusions or innocuous "hallucinations." It is the world's most advanced liar.
Lies, BS, and Con artistry all require conscious motive and intent. Thats a bridge to far, for me, in ascribing ‘intelligence’ to these models.
Hallucination, to me, conveys ‘seeing things (facts) that are not there’. To the extent the models are ‘perceiving’, they ARE perceiving reality incorrectly. Granted, I expect many times it’s because the source of the model training data are, at best, just wrong or are lying.
Those are very inaccurate descriptors. A lie is an intentional deception, which is impossible for GPT. It "believes" that it "knows" something about the world, which happens to have been made up wholesale by its "subconscious" (obviously I know it's not a human brain). That is pretty much a hallucination by definition, applied to a non-human "intelligence".
Besides,
> it's presenting wholesale fiction as fact both coherently and with absolute confidence
That is not in any way distinct from perceiving reality incorrectly. It is a symptom common to both skilled lying and hallucination.
Confabulation is the unintended generation of false memories.
Hallucination is false perception.
Clearly, the phenomenon we are seeing with LLM researchers call Hallucination better fits Confabulation.