I don't think we have the correct word for what LLMs do but lie and hallucinations are not really correct.
LLMs create quite deep representations of the input on which they based their next word prediction (text continuation), and it has been proved that they already sometimes do know when something they are generating is low confidence or false, so maybe with appropriate training data they could better attend to this and predict "I don't know" or "I'm not sure".
To improve the ability of LLMs to answer like this requires them to have a better idea of what is true or not. Humans do this by remembering where they learnt something: was it first hand experience, or from a text book or trusted friend, or from a less trustworthy source. LLMs ability to discern the truth could be boosted by giving them the sources of their training data, maybe together with a trustworthiness rating (although they may be able to learn that for themselves).
How many people would agree that P.T. Barnum said “There’s a sucker born every minute”? That would be a hallucination.
The quote is from Adam Forepaugh.
"Confabulation" still isn't great because humans confabulate with non-verbal memories and then express those confabulations in words; human confabulation mostly affects biographical memory, not subject matter knowledge. But considering how weird it is to even be talking about "memory" with a being that isn't aware of the passage of time, I think "confabulate" is the best option short of inventing a brand new word.
Specifically: bullshitters know they are bullshitting and hence they are intentionally deceptive. They might not know whether their words are false, but they know that their confidence is undeserved and that "the right thing to do" is to confess their ignorance. But LLMs aren't even aware of their own ignorance. To them, "bullshitting" and "telling the truth" are precisely the same thing: the result of shallow token prediction, by a computer which does not actually understand human language.
That's why I prefer "confabulate" to "bullshit" - confabulation occurs when something is wrong with the brain, but bullshitting occurs when someone with a perfectly functioning brain takes a moral shortcut.
In that sense you could described LLMs as industrial strength bullshit machines. The same way a meat processing plant produces pink slime at the design of its engineers so too do LLMs produce bullshit at the design of theirs.
I believe 'bullshit' is accurate, as in "The chatbot didn't know the answer, so it started bullshitting".