Continuous Latent Contexts Enable Efficient Online Learning in Transformers

Large language models (LLMs) exhibit a strong capacity for in-context learning: Given labeled examples, they can generate good predictions without parameter updates. However, many interactive settings go beyond static prediction to online decision-making, in which effective behavior demands adaptation over long multi-turn horizons in response to feedback, and efficient algorithms in these domains must use compact representations of what they have learned. Recently, continuous transformer architectures with latent chain of thought have shown promise for offline iterative tasks such as directed graph-reachability. Motivated by this, we study whether continuous latent context tokens equip transformers to more effectively realize online learning. We give explicit constructions of constant-depth transformers that implement two foundational online decision-making procedures -- the weighted majority algorithm and Q-learning -- by storing their algorithmic state as linear combinations of feature embeddings, using a small number of latent context tokens. We further train a small GPT-2-style transformer with latent contexts using a multi-curriculum objective that does not directly supervise the latent states. On long synthetic online prediction sequences, this model outperforms larger and more complex LLMs, including Qwen-3-14B and DeepSeek-V3. Our results suggest that continuous latent contexts provide a simple and effective persistent state for transformers to implement online learning algorithms.