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Dr.EisDrachenJaeger said:

Ai determines the character actions and travel patterns. Everything else dictates the interactions.

Ai hasnt really changed that much since N64 era either. Play FEAR and you'll see.

The character movements are done by animations, not physics! What I think your talking about is rigid body physics for NPC's where the force applied to the to the NPC's body parts will make it move.