Issues arise when this projected individual differs substantially to the actual. On a one to one face to face basis, one typically rapidly readjusts one's model of another rapidly, as it's free floating and has no broader corpus to fall back on. This varies when you deal with someone famous (large corpus, many precepts) or intimate (seemingly large corpus, actually selection bias and neurosis), and the model usually becomes less accurate.
Where it gets interesting is herd interactions, either on or offline. Lynch mobs, trial by media, witch burning, Internet hate machine, war - all arise from inaccurate models of the minds of others, which are reinforced through perceived (abiline!) collective consensus.
Long story short, there's no good and evil, most narrative is self constructed, this is as old as man.