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Paradox Interactive has completely cancelled "Life By You"
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You'd need the conversations to be highly constrained in order to not break the game. Currently there are too many ways of "jailbreaking" LLMs. It was too much of a scope creep for a game which was already biting off a lot more than most studios could chew.
While that's true, I suspect that whoever gets there first will get a free pass in the court of public opinion, so long as it's a single player game.
"Look how awful my Sims are" is already a recurring gag hobby, anyway.
I wouldn't give it a free pass if it ruined the gameplay and would have been easier for them not to implement.
There already are a small number of games utilizing LLMs. Yes it‘s immersion breaking from time to time but the worst part is the credit system many of them use to pay for the API. If you go past your conversation limit, you‘ve got to pay extra.
That sounds awful