Is Hallucination Not a Flaw? The Psychological Code of AI Hallucination Shaping Brand Attitudes

AI hallucination is traditionally viewed as a technical defect, yet its creative potential in brand communication remains underexplored. This study investigates how AI hallucination influences consumers’ brand attitudes in image advertising and identifies boundary conditions. An experiment with 398 participants reveals that factual hallucination negatively affects brand attitude, whereas creative hallucination exerts a positive effect. Artificial empathy and psychological distance serially mediate these effects, and media literacy plays a dual moderating role. The findings enrich theories of AI hallucination and consumer behavior while offering actionable guidance for brands employing generative AI in advertising. Keywords: AI Hallucination, Psychology Distance, Brand Attitude, Source Characteristics