Towards Mechanistically Understanding Why Memorized Knowledge Fails to Generalize in Large Language Model Finetuning

Paper · arXiv 2607.08393
Training and Fine-Tuning

Fine-tuning LLMs to inject new knowledge faces a critical challenge: LLMs can quickly memorize new facts, yet fail to use them for downstream reasoning tasks. We formalize this failure as the Knowing–Using Gap, characterized by an accuracy gap and a temporal lag between memorization and generalization. To understand this phenomenon, we fine-tune LLMs with unseen knowledge and monitor the spatial permeation dynamics of the knowledge internally using a novel intervention technique called self-patching. Self-patching identifies activation locations where relocating representations substantially improves failed generalization cases. These results are consistent with a knowledge-circuit misalignment hypothesis: memorized representations can exist internally but may not be routed to computation-effective layers. To demonstrate the practicality of this diagnostic finding, we design a simple heuristic strategy which recovers 58–75% of the oracle headroom in generalization failure. Experiments are done cross-domain for the robustness of this finding. Code and data are open at https://anonymous.4open.science/r/Mem2Gen-71FF.

Introduction. Large language models (LLMs) excel at varieties of tasks but face significant challenges in adapting to unseen information, necessitating effective methods for post-training knowledge updates. While there are approaches like retrieval-augmented generation (RAG) and knowledge editing Meng et al., Gupta et al. [2024], fine-tuning remains a fundamental paradigm for knowledge updating, as it not only operates on parametric memory end-to-end but also injects knowledge in a way that can be reused by the model’s existing reasoning capabilities. Despite sufficient capacity to fit new data Morris et al. [2025], Allen-Zhu and Li, LLMs exhibit a “remembering but not using” failure Ovadia et al. [2024], Soudani et al. [2024], Zhong et al. [2023], Cohen et al. [2024], Berglund et al. as shown in Figure 1: models can memorize new facts (e.g., “Sydney is located in [Entity]”) but fail to reliably use them in downstream reasoning (e.g., “The capital of the country Sydney located is ...”) Zhong et al. [2023], Cohen et al. [2024], Yao et al.

Discussion / Conclusion. We identified the Knowing–Using Gap: fine-tuned LLMs memorize injected facts yet fail to use them in multi-hop reasoning. Using self-patching as a causal diagnostic, we trace this failure to knowledge–circuit misalignment—knowledge is encoded in storage-oriented early or late layers but does not permeate into the mid-layer circuits required for reasoning. The gap is thus a routing problem, not a capacity one—knowledge resides in the model, just not where reasoning happens. It is also partially reversible: a heuristic recovers 58–75% of oracle headroom, and the effect replicates across models, scales, and domains. Together, these results recast fine-tuning’s generalization failure as a tractable alignment problem, and point to alignment-aware training as a principled path forward.

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Research framings built by reading the notes related to this paper — the questions it feeds into.

How do neural networks separate factual knowledge from reasoning abilities? How do knowledge injection methods compare across cost and effectiveness? What memory architectures best support persistent reasoning across extended interactions? Can prompting inject entirely new knowledge into language models? How should memory consolidation strategies shape agent performance over time? How does memorization interact with learning and generalization? Does decoupling planning from execution improve multi-step reasoning accuracy? How do standardized protocols improve coordination in multi-agent systems? Why do continual learning scenarios trigger catastrophic forgetting and interference? Does self-reflection enable models to reliably correct their errors? Do autonomous architecture discoveries follow predictable scaling laws? What determines success in training models on multiple tasks? Does alignment training create blind spots in detecting genuine safety threats? Why do self-improving systems struggle without clear external performance metrics? Why does supervised fine-tuning improve accuracy while degrading reasoning quality? Does fine-tuning modify underlying model capabilities or only behavioral outputs? What prevents language models from reliably adopting diverse personas?