Agentic AI systems fail not primarily due to model hallucinations but due to flawed system design. Three major failure modes are identified: infinite loops (agents retrying endlessly without progress due to missing termination conditions or action tracking), hallucinated planning (agents creating plausible but unexecutable plans by assuming capabilities they don't have), and unsafe tool use (agents performing technically valid but destructive actions due to overprivileged tools and missing approval workflows). Mitigations include setting max retry limits, validating plans before execution with verifier agents or human-in-the-loop, clearly defining tool schemas and constraints, and applying the principle of least privilege to tool permissions.
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