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>very small children spending a lot of their time learning basic concepts of cause and effect, properties of objects, materials and physics and so on.

i do not believe that young children explicitly/consciously simulate in their minds to learn cause and effect and other things, though this might be up for debate

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Who said anything about "consciously"? It doesn't need to be conscious to affect the conversation.

as to whether it is conscious or not influences whether you would want to model it a-la 3d physics engine, or if not then perhaps there is a more elegant solution we do not know of yet

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