If you don't allow the circumstances in the setting to influence, or in some cases outright dictate, GM adjudication, then IMO you're not playing Living World. You're playing backdrop to PC protagonism. Imaginary things absolutely can (and IMO should) participate in causal process, because they are a major factor in determining what decisions are made.
This is really well said, and I would like to connect it back to the core assumption behind my Living World sandbox approach, especially for the casual gamer who might be reading along.
What you’re describing is how I handle adjudication. The idea that the circumstances of the setting, what has already been established, do not just provide background detail, they actually shape and sometimes dictate what happens next. When I say the world has causal continuity, I do not mean it is real in any metaphysical sense. I mean that once something exists in the world, it behaves as if it is real. Players can rely on that. The referee cannot just handwave it away. A locked gate is locked. A patrol has a set route. A drought causes real shortages. These may be imaginary elements, but they carry consequences because the world treats them as facts.
This is the core of the Living World sandbox. The players make choices in a world that behaves consistently, even when they are not present. The referee is not there to sculpt their story but to keep the logic of the world in motion based on what is already true.
One thing worth adding, for anyone thinking about how this plays out in practice, is that the referee is not deciding outcomes on the fly. The current state of the world shapes their rulings, the consequences of past events, and the procedures they have committed to. That is what keeps the game from feeling arbitrary. It is not that the referee has no control, but that their control is grounded in a consistent framework. That is what gives weight to player choices and makes the results feel earned.
All of this follows from my core assumption: once something is true in the world, it stays true until something in the world changes it. It is treated as real because we choose to treat it as real. The consequences follow because we choose to follow the consequences. Taken together, this creates a distinct style of campaign and play that stands on its own merits. It also provides a foundation for players to judge whether the referee is being fair and reasonable as the campaign unfolds.