Feature Hedging: Correlated Features Break Narrow Sparse Autoencoders

It is assumed that sparse autoencoders (SAEs) decompose polysemantic activations into interpretable linear directions, as long as the activations are composed of sparse linear combinations of underlying features. However, we find that if an SAE is more narrow than the number of underlying "true features" on which it is trained, and there is correlation between features, the SAE will merge components of correlated features together, thus destroying monosemanticity. In LLM SAEs, these two conditions are almost certainly true. This phenomenon, which we call feature hedging, is caused by SAE reconstruction loss, and is more severe the narrower the SAE. In this work, we introduce the problem of feature hedging and study it both theoretically in toy models and empirically in SAEs trained on LLMs. We suspect that feature hedging may be one of the core reasons that SAEs consistently underperform supervised baselines. Finally, we use our understanding of feature hedging to propose an improved variant of matryoshka SAEs. Importantly, our work shows that SAE width is not a neutral hyperparameter: narrower SAEs suffer more from hedging than wider SAEs. As large language models (LLMs) are deployed in real-world applications, it is increasingly important to understand their internal workings. SAEs have the advantage of operating completely unsupervised, and can easily be scaled to millions of neurons in its hidden layer (hereafter called "latents" While SAEs showed promising results, recent work has cast doubt on the performance of SAEs relative to baseline techniques. Wu et al. (2025) show that SAEs underperform on both concept steering and detection relative to baselines, and Kantamneni et al. (2025) show that SAEs underperform simple linear probes on both in-domain and out-of-domain detection, even when the probes have very few training samples. The question, then, is why do SAEs underperform relative to other techniques? And if we can identify the problems holding back SAEs, can we then fix those problems?