Model Validation of Agentic AI Systems: A POMDP-Based Framework for Belief-State, Forecast, and Policy Validation
On the map: LLM agents and tool use → Financial trading and forecasting agents
Abstract (arXiv)
Agentic artificial intelligence systems introduce a new class of model risk. Unlike traditional predictive models, autonomous agents continuously acquire information, form beliefs regarding latent states of the environment, generate forecasts, select actions, and adapt their behavior over time. Existing validation methodologies focus primarily on predictive accuracy and therefore provide limited insight into the quality of the underlying decision process. This paper proposes a model validation framework for agentic AI based on Partially Observable Markov Decision Processes (POMDPs). The framework decomposes autonomous decision making into information, beliefs, forecasts, actions, and utility, allowing each component to be validated independently. Large language models (LLMs) are formalized as approximate Bayesian filtering operators, and a model-risk taxonomy is developed encompassing state-space, filtering, forecast, policy, utility-specification, and parameter risks. The model risk validation methodology is demonstrated through a portfolio-management case study in which an agent infers latent market regimes from market and macroeconomic information, generates belief-conditioned forecasts, and constructs portfolios using a Black--Litterman framework. Empirical validation combines performance analysis, belief calibration diagnostics, coverage tests, ablation studies, and parameter-sensitivity analysis. The results indicate that latent-state inference contributes independently to decision quality and that the principal conclusions remain robust across a broad range of parameter values. The principal contribution of the paper is a practical framework for extending established model risk management concepts to autonomous AI systems and providing a rigorous foundation for their validation, governance, and monitoring.
Key facts. No citing papers in the map yet (data through 14 Oct 2026). Placed in Financial trading and forecasting agents, one of 16 directions in LLM agents and tool use. Builds on 8 of its 38 references that are in the map. First posted on arXiv 16 Jun 2026.
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References · 8
- 2022ReAct: Synergizing Reasoning and Acting in Language Modelscited by 8,695
- 2023Reflexion: Language Agents with Verbal Reinforcement Learningcited by 4,276
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- 2023Generative Agents: Interactive Simulacra of Human Behaviorcited by 3,568
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- 2023The Rise and Potential of Large Language Model Based Agents: A Surveycited by 1,439
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- 2026STOCKTAKE: Measuring the Gap Between Perception and Action in LLM Agents with a Fair Oracle
- 2025The Agentic Regulator: Risks for AI in Finance and a Proposed Agent-based Framework for Governance
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- 2024Agent-state based policies in POMDPs: Beyond belief-state MDPs