Whoa, thanks for the bump. Y'all brought up some good ideas and I have a few new thoughts of my own, so I'll try to pull it all together.
One of the implicit assumptions of this system is that "historical events" (wars, deaths, thefts, the creation of masterpieces, etc.) and "thought events" ("I was forced to eat my beloved pet recently," "I got out of jail recently") have to be unified under the same framework, because some events should count as both -- for instance, a king falling into depression due to a baron's pretentious dining arrangements is currently a personal "thought event," but it could also be a historically significant event with major consequences.
So let's analyze -- what makes the king's depression "historical?" First: it's an important event to
him. This goes for victims or beneficiaries of any event. Second: the king is in turn important to his civilization, a multitude of people. Enemies of the king could be made happy by the news (including personal rivals, political opponents, and goblins screaming for his blood), while supporters of the king could be sad, or shameful, or frightened, depending on their own personality, and how exactly they relate to the king.
The notion of "common knowledge" is extremely important. Particularly during worldgen, the game can't afford to track the propagation of information between every single person. Generalizations have to be made -- initially the story spreads (unless it's kept secret) to a few people close to the king, but if it keeps spreading, the event quickly reaches the status of "common knowledge" in the capitol, by which point a select few people in other towns might know of the event as well, so the information keeps spreading.
Lying, ignorance and other forms of imperfect knowledge can also play in here. One obvious bit of information that could get lost is the identities of people involved in the event -- the people might not know which baron offended the king. How does this happen? First, the king tells the whole story to a few confidants. Somebody lets the cat out of the bag, but the baron's identity is misreported or omitted. Who would do this, and why?
- One of the confidants is a friend of the baron, and he anticipates that some people, who like the king better than the baron, will hate the baron for upsetting the king. Mental attributes like social awareness could play a role in this kind of foresight.
- A servant was eavesdropping and didn't catch all the details.
- One of the confidants wants to arouse anger against another baron who wasn't involved.
Note that the people could still know that it was a baron. So there need to be vague ways of describing people -- political positions, racial descriptors, physical characteristics, etc. "My father was slaughtered by a six-fingered man" and all that great stuff.
The "that's not what I heard" situation -- garbled versions of events retain a link to the real event, so that the game can recognize when people are telling contradictory stories about the same event. People can agree to disagree, or persuade each other by sheer force of personality, or whatever.
Imperfect knowledge could also arise circumstantially, rather than by miscommunication. Take our "goblin kills dwarf" example. If another dwarf is present, he will know that a goblin killed the dwarf, but he might not know
which goblin. (Masks and disguises!) If nobody else is present, the dwarves will find the body, and might be totally clueless as to the cause of death.
And finally: insignificant events. Nobody really cares that Geshud the peasant is tired of eating plump helmet stew. He might tell a few acquaintances about it, but they don't care about him and they don't find the information interesting. They don't pass the knowledge on to anybody else, so it remains effectively a personal event -- only important to Geshud. Until 20 years later, when Geshud is a master engraver and immortalizes his hatred of plump helmets in captivating art! So insignificant events could still lurk around, waiting to become significant, although the vast majority never would.
Oh, one last thought -- the logic needed for the devious confidante to lie about the baron's identity would be exactly the same logic used for
propaganda art and other fictionalizations