Well; you could. A simulation like that doesn't involved rendered characters, just the data behind what is happening to them. When you play Fallout or Skyrim the characters wander around the world like that. If you have a mission where you are going someplace with someone, you have the option to follow along, or go do whatever you want.. and the characters go about on their way to the place you are both headed, and can get into random fights with animals and whatnot...
They then actually render everything happening in a pretty wide cone around you, but not the entire world, as that's pointless.. but you can tell the "data" for the simulation is still happening. Sometimes this breaks the game of course lol (you go to meet someone somewhere and they never show up.. if you trace backwards the path you might find them stuck on a tree or something.)
But some combo of a real simulation and "faked" things just being simulated when you "get near" could make a game so much better.. I really wish Sony would push the limits on that type of thing, and not so much "get crazy thing on screen" or "set pieces."
Yes I agree, thats why I said "...can't simulate
very complex happenings in places too far from you", thats definitely what they do now, as far as I know most engines track the progress of NPCs far away from you with very simple simulations that change their update freqency as the distance from you increases, then updating the position of the NPC/the contents of their inventory and the like.
So I'm not sure an NPC can get stuck in a tree due to pathfinding or actually perform the actions of fighting other NPCs on the way to a location with the current way its done because its not that deep of a simulation, even if none of the meshes are visible. You technically could do it but I'm assuming they don't because it would take away too much CPU time, that they already use for the local modern game stuff, like complex physics, AI, sound simulation, animation blending, etc.
I do hope they can improve upon that going forward so open world games get to Hitman levels of simulation where you can literally see the NPC on the polar opposite side of the map going about according to the rules of their AI. They simulate all the same parts of the AI for the 299 NPCs on the map (Agent 47 is number 300 according to the devs, that was on Hitman 2016 though, maybe changed in H2/H3) when you aren't there but with a lowered movement update rate which you can sometimes see on the instinct-vision thingie if it glitches out, ie them teleporting a few feet every second or so.
I have a feeling its a tradeoff though, have tons of complex AI, physics and animations locally OR have more NPCs simulated more accurately/"immersively" outside of your current view or really far away. I don't know if the new console CPUs are going to facilitate that even at the end of this gen, but its not possible until someone does it!
A much more stylised game could do it right now I think, but then it wouldn't have the physics, animations, etc that make them feel like real people in the first place so maybe wouldn't have mass appeal even if it was a brilliant never before seen simulation of a world, which is a shame because graphics and fancy animations are great but ultimately the game is what counts to me.