Just read this article on Gamasutra about simulating complex character development.
It kind of reminds me of when I was looking into Radiant AI, the AI used in 'Oblivion'. In the finished version of the game, characters were programmed with a set list of things they needed to do. This is actually highly simplified from the original version of the game. The designers found that characters came out extremely chaotic and unpredictable with the original, more advanced, AI. An example included town guards. Their job is to patrol towns to make sure people aren't breaking the rules. One of the guards became hungry (because all NPCs, even in the new version of the AI, must eat something every so often) and went to get some food. The other guards, noticing he'd abandoned his post, a crime, went after him to arrest the errant guard. In the absence of any guards, the townspeople ran amok, looting and killing! Presumably they were programmed to follow rules if they were in a situation where not doing so would result in trouble.
This video shows how the old AI was: