Honestly, that sounds like an AI bug to me. It ought to react to that.

In Oblivion (and now in Skyrim, I suspect) it was possible to concretely push NPCs around if your sneak value was above their perception skills. I proposed and collaborated with a modder who developed a routine that used proximity value to apply sneak penalties when the character was at the low proximity of any NPC. Needless to say it increased sneak immersion by tenfold at least.

That would let them de-couple the AI that detects inappropriate behavior from the NPC reactions to it, and serve as a catch-all for any and all behaviors that do not fit the expected social norms, like placing pots on people’s heads or what have you.

It’s not that the AI is poor; it’s that it lives in a design with ridiculously ambitious requirements compared to any other game on the market.

Their AI team has clearly grown in skill and size over the years, and the AI is better with each iteration of the Elder Scrolls games, but there’s still so much left to be done.

There’s nothing technologically holding the game back from having much better AI.

I think it really comes down to production & budgeting — they need a bigger team, more time, and a bigger voice/animation budget.

I’d really like to see BethSoft get to the point where they allocate enough resources to their AI to do all of this stuff justice … and I’d like to see consumers get to the point where we demand it.

I don’t think that exploding possibility space is a good explanation for NPCs lack of self awareness in these situations. There are plenty of heuristics that would create much more useful consequences for unlawful play archetypes. E.g. lowering disposition towards PC if moving objects (that are being manipulated by the PC) are colliding with the neutral NPC.