Density functional calculations on the (non)linear optical properties of co
njugated molecular chains using currently popular exchange-correlation (xc)
potentials give overestimations of several orders of magnitude. By analyzi
ng "exact" and Krieger-Li-Iafrate re potentials, the error is traced back t
o an incorrect electric field dependence of the "response part" of the re p
otential in local and gradient-corrected density approximations, which lack
a linear term counteracting the applied electric field.