Transformers often fail to learn generalizable algorithms, instead relying on brittle heuristics. Using graph connectivity as a testbed, we explain this phenomenon both theoretically and empirically. We consider a simplified Transformer architecture, the disentangled Transformer, and prove that an $L$-layer model has capacity to solve for graphs with diameters up to exactly $3^L$, implementing an algorithm equivalent to computing powers of the adjacency matrix. We analyze the training-dynamics, and show that the learned strategy hinges on whether most training instances are within this model capacity. Within-capacity graphs (diameter $\leq 3^L$) drive the learning of a correct algorithmic solution while beyond-capacity graphs drive the learning of a simple heuristic based on node degrees. Finally, we empirically demonstrate that restricting training data within a model's capacity leads to both standard and disentangled transformers learning the exact algorithm rather than the degree-based heuristic.

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