We generally only hallucinate while dreaming / using our imagination. And we can distinguish those two states. Admitting lack of knowledge is of course good but, for example, if you ask it to write some code that isn’t boilerplate API integrations, it’ll do so happily even when it’s wildly wrong and it can’t tell the difference and that is also the case with GPT4 afaik. Moreover, you can’t solve it through prompt engineering because there’s clearly a lack of context it’s unable to understand to figure out what non trivial thing your asking it.