I never thought of this as Fredo being deceitful, or as FFC trying to make Fredo unreasonably stupid.

Rather, Fredo's in a great deal of turmoil at that point. He's scared and regretful about his betrayal and he's realizing that he and Michael have more in common than he thought.

I think that he's just generally flustered and - never the sharpest knife in the drawer - simply blanks on the word.

"A man in my position cannot afford to be made to look ridiculous!"