How To Train Your World Model: Fine-tuning vs RAG for LM-based World Modeling

Dhananjay Ashok, Shantanu Agarwal, Vivek Datla, Jonathan May, Alfy Samuel

World models (WMs) simulate the transition dynamics of environments, enabling agents to plan over the consequences of their actions. In text-based environments, fine-tuning a Language Model (LM) to serve as a WM has emerged as a dominant paradigm. However, despite the widespread success of non-parametric approaches such as Retrieval Augmented Generation (RAG), retrieval for LM-based world modelling remains underexplored. We conduct a systematic evaluation across five diverse environments spanning embodied, web navigation and social settings, comparing fine-tuning and RAG-based approaches for LM-based world modelling. Our study reveals that fine-tuning often outperforms RAG, with fine-tuned WMs enabling agents to obtain higher rewards on 15/20 settings. While both construction paradigms benefit from additional and more diverse exploration, RAG-based approaches prove more data-efficient, and fine-tuning approaches disproportionately benefit from scaling the amount of experience collected. With a focus on RAG-based WMs, we devise a procedure that uses counterfactual intervention to estimate the error rate of the retrieval stage, and show that retrievers consistently surface…