Generative AI presents vast opportunities but also risks. Misuse, whether intentional or not, can lead to significant “real-world” consequences. We presented subjects (n=139) with five vignettes describing incidents involving generative AI. We explored the relationship between their level of AI literacy, attitude towards AI, trust in AI chatbots, and people’s reactions to the vignettes. Attitude and trust, measured before and after the vignettes, declined significantly. However, these changes as well as the reactions to the vignettes were unrelated to AI literacy. Yet, higher AI literacy was associated with more frequent use of AI chatbots, higher trust and more positive attitudes towards AI. So while AI literacy appeared to be related to the general perceptions and usage of generative AI, it was not linked to the evaluation of incidents involving generative AI. The implications for trust calibration and appropriate reliance are discussed.