[Ajedi32]

That's the exact opposite of what the term "hallucination" is intended to imply. If it knew what was real and produced the wrong result anyway that would be a lie, not a hallucination.

I've heard the term "confabulation" as potentially more accurate than "hallucination", but it never really caught on.

[danudey]

"Confabulation" would never catch on because it's a word that most people don't know and couldn't remember. "Hallucination" is easier to remember, easier to understand, and easier for laypersons to build a mental model of.