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Validating Large Language Model Annotations

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Abstract

This paper proposes a validation framework for LLM-generated measurements when reliable benchmarks are unavailable. Validity is established by testing whether an LLM can reconstruct passages from annotated labels while maintaining semantic consistency with the original text. The framework avoids circular reasoning by establishing testable prerequisite properties that must be met for a validation to be considered successful. Application to news article data demonstrates that the framework serves as a practical alternative to human benchmarking, which offers advantages in objectivity, scalability, and cost-effectiveness while identifying cases where LLMs capture economic meaning that human evaluators miss.

Suggested Citation

  • Anne Lundgaard Hansen, 2026. "Validating Large Language Model Annotations," Finance and Economics Discussion Series 2026-020, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:103001
    DOI: 10.17016/FEDS.2026.020
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    References listed on IDEAS

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    1. Bertsch, Christoph & Hull, Isaiah & Lumsdaine, Robin L. & Zhang, Xin, 2025. "Central bank mandates and monetary policy stances: Through the lens of Federal Reserve speeches," Journal of Econometrics, Elsevier, vol. 249(PC).
    2. Jens Ludwig & Sendhil Mullainathan & Ashesh Rambachan, 2024. "Large Language Models: An Applied Econometric Framework," Papers 2412.07031, arXiv.org, revised Dec 2025.
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    5. Liu, Tong & Shi, Yanlin, 2025. "News sentiment and investment risk management: Innovative evidence from the large language models," Economics Letters, Elsevier, vol. 247(C).
    6. Pekka Malo & Ankur Sinha & Pekka Korhonen & Jyrki Wallenius & Pyry Takala, 2014. "Good debt or bad debt: Detecting semantic orientations in economic texts," Journal of the Association for Information Science & Technology, Association for Information Science & Technology, vol. 65(4), pages 782-796, April.
    7. Agam Shah & Arnav Hiray & Pratvi Shah & Arkaprabha Banerjee & Anushka Singh & Dheeraj Eidnani & Sahasra Chava & Bhaskar Chaudhury & Sudheer Chava, 2024. "Numerical Claim Detection in Finance: A New Financial Dataset, Weak-Supervision Model, and Market Analysis," Papers 2402.11728, arXiv.org, revised Oct 2024.
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    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General

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