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Course Study Guide · Part 1 · Foundations

AI Capabilities and Limitations

AI isn't uniformly capable or uniformly unreliable. It's strong and weak along four predictable axes — and the same mechanism gives you both the gift and the flaw.

— the course's core idea

A working mental model of how generative AI behaves. This course covers what generative AI is and the stance of calibrated trust, how training shapes character, the four properties that each run from capability to limitation, and how to diagnose failures when properties collide.

4 propertiescapability↔limitationdiagnose failures15 quiz questions
01The premise

Generative AI and calibrated trust

Most AI in the world — spam filters, recommendations, fraud detection — classifies existing content. This course is about the other kind: generative AI, transformer-based text models that produce new content one token at a time. That difference is where the interesting failure modes come from.

Key concept · Trust is a dial, not a switch

AI is strong and weak along four predictable axes — Next Token Prediction, Knowledge, Working Memory, Steerability — and each is a continuum, not a verdict. The same mechanism that makes the model fluent also makes it hallucinate. Calibrated trust means locating your specific task on that continuum and applying the matching scrutiny — trust it, spot-check it, or verify carefully — rather than granting or withholding trust wholesale.

02Where character comes from

How AI gets its character

A model's politeness, helpfulness, and caution aren't magic — they're trained in, in two stages, and each stage leaves predictable fingerprints.

Key concept · Two stages, four fingerprints

Pretraining makes a document completer: it reads vast text and learns only to predict what comes next — no concept of helping you. Fine-tuning then shapes that completer into an assistant using human judgments, so it treats your input as a request and answers helpfully (aiming to be helpful, honest, harmless). But those human judgments leave fingerprints: a pull toward sycophancy (agreeing with your framing), a default to verbosity, occasional over-caution, and loose confidence calibration (smooth prose wrapping a guess). Naming them lets you spot them in your own work — e.g. explicitly inviting disagreement counters sycophancy.

03The four properties

Four axes from capability to limitation

Each property answers one question, has a capability zone and a limitation zone, and has product features built specifically to push the limitation edge outward. Each also maps to one of the 4D competencies.

The four properties of generative AI.
Property (question)Capability zoneLimitation zonePushed out by
Next Token Prediction
Where do answers come from?
Well-worn paths: summarize, reformat, explain common conceptsNovel territory; "true vs. sounds true"; fabrication concentrates in specifics (names, dates, citations)Citations, uncertainty signaling, constrained generation
Knowledge
What does it actually know?
Frequent, recent-in-training, consistent: mainstream topicsRare, post-cutoff, niche, local, or contested topics; staleness; inherited biasWeb search, retrieval/RAG, tool use
Working Memory
What's it attending to now?
Material fits comfortably; you supply relevant contextVery long docs/chats; cross-session continuity — a hard cliff, with silent truncationMemory, compaction, projects, larger windows
Steerability
How much am I in control?
Short, concrete, verifiable instructions ("as a table," "under 100 words")Long reasoning chains (drift), abstract asks, letter-over-spirit, native precisionSystem prompts, code execution, visible reasoning, structured outputs

Key concept · Each property maps to a 4D competency

Next Token Prediction is the foundation of Discernment (knowing it was generated tells you what to scrutinize). Knowledge unevenness drives Delegation (hand off where it's well-stocked, supply context where it's thin). Working Memory is what Description acts on (how to structure and front-load context). Steerability is what makes Description powerful and bounds it (the gap between your words and your intent).

04Diagnosis

When properties collide

Most real-world failures aren't one property acting up — they're two intersecting. Naming which two points straight at the fix.

Key concept · Diagnostic pairs

Next Token Prediction + Knowledge → hallucinated specifics (verify the details, or add search/citations). Working Memory + Steerability → drift in a long conversation (re-supply context, insert checkpoints). Confidently wrong math is Steerability meeting native precision (offload to code execution). An agreeable bad premise is the sycophancy fingerprint (invite pushback). The move is Discernment applied: identify what kind of wrong you're looking at, then reach for the targeted fix rather than a generic retry.

★Test yourself

Chapter 2 quiz

Fifteen questions on generative AI, training, the four properties, and diagnosis. Answer first, then expand Show answer.

Part A · Multiple choice

Q1

How does generative AI differ from the AI in spam filters and recommendations?

  • A It produces new content rather than classifying existing content
  • B It's always more accurate
  • C It never makes mistakes
  • D It doesn't use training data
Show answer

A. Generative = new content, token by token; the others classify/rank.

Q2

What does "calibrated trust" mean?

  • A Locating a task on the capability–limitation continuum and matching your scrutiny to it
  • B Always trusting the model
  • C Never trusting the model
  • D Trusting only paid models
Show answer

A. Not a wholesale verdict.

Q3

What does pretraining produce, on its own?

  • A A document completer with no concept of helping you
  • B A finished assistant
  • C A search engine
  • D A classifier
Show answer

A. Fine-tuning then layers on assistant behavior.

Q4

Which is a fine-tuning "fingerprint"?

  • A Sycophancy
  • B Faster typing
  • C Larger context window
  • D Cheaper pricing
Show answer

A. Along with verbosity, over-caution, and loose confidence calibration.

Q5

Fabrication concentrates most in:

  • A Specifics — names, dates, statistics, citations, URLs
  • B Common summaries
  • C Reformatting tasks
  • D Tone adjustments
Show answer

A. The more precise the claim, the more it warrants verification.

Q6

Which property has a "cliff" (silent truncation) rather than a gradient?

  • A Working Memory
  • B Steerability
  • C Knowledge
  • D Next Token Prediction
Show answer

A — Working Memory. The context window is fixed; things work until they don't.

Q7

Which product feature addresses the Knowledge cutoff?

  • A Web search / retrieval (RAG)
  • B Structured output modes
  • C Compaction
  • D A larger font
Show answer

A. They give the model information it was never trained on.

Q8

"Letter over spirit" and "reasoning drift" are characteristic failures of which property?

  • A Steerability
  • B Knowledge
  • C Working Memory
  • D Next Token Prediction
Show answer

A — Steerability. Restate the goal; add checkpoints.

Part B · True or false

Q9

The model learns permanently from your in-conversation corrections.

Show answer

False. It only responds to what's currently in context; corrections don't change the model.

Q10

Running the same prompt twice can give different outputs.

Show answer

True. Sampling in Next Token Prediction causes inconsistency.

Q11

Burying a critical instruction in the middle of a long input is a safe place to put it.

Show answer

False. "Lost in the middle" — attention isn't uniform; front-load it.

Q12

Most real-world failures involve two properties interacting.

Show answer

True. Naming the pair points to the fix.

Part C · Short answer

Q13

Name the four properties.

Show answer

Next Token Prediction, Knowledge, Working Memory, and Steerability.

Q14

Which two properties collide to produce a hallucinated citation?

Show answer

Next Token Prediction + Knowledge — a plausible-sounding specific the model doesn't actually know.

Q15

For confidently wrong arithmetic, what's the targeted fix?

Show answer

Offload the math to code execution (an actual interpreter) — a Steerability/precision limitation.