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My players misunderstood an NPC’s personality, and I’m okay with that

Content of the article: "My players misunderstood an NPC’s personality, and I’m okay with that"

I'm a new DM, so I don't really want to post this calling it advice, but something happened that gave me a lot to think about, and I thought it might be worth discussing.
In an adventure a while ago, the PCs ended up trapped in a hellish carnival, where they would need to deal with numerous insane/evil NPCs.
I tried to make each one unique, and one of these NPCs was a man who continually broke out into hysterical laughter.

This was a combat heavy adventure, but depending on the NPC they were dealing with, that NPC's own unique brand of insanity, and that NPC's unique powers, there was potential for certain fights to be avoided or shortened if approached right.
This 'laughing man' was in my head just as evil as the rest, but was constantly amused by the players antics, making him one of only NPCs there I'd have allowed some form of persuasion as a method to avoid combat.

The players did just this, and challenged the laughing man to play against them in one of the carnival games; if they won he'd have to let them pass.
I had them roll persuasion and they succeeded, so they then played the game and won, which the NPC still found hysterical.
He let them pass and the adventure continued.

However, it became clear later (when they found the laughing man was being punished for letting them pass) that they'd taken his ability to be persuaded, his willingness to engage in an honest game, the fact he wasn't outwardly aggressive like most of the other NPCs here, the fact he showed no signs of resentment when he lost, and the fact he let them pass even when doing so went against the ringmaster's wishes so severely as to require punishment, all to mean that he wasn't actually evil (even if he was a little insane).
They actually ended up rescuing him from his cage before continuing.

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At this moment, I had a choice.
I could have stuck to my guns, known that the NPC's motivations were purely amusement, and decide that he would attack them to try and right his 'mistake' in the eyes of the ringmaster.
I could even see bonuses from this from a narrative perspective, as them truly believing this character wasn't evil could have served as a typical 'betrayal' scenario.

However, after giving it a moment of consideration, I realized there was no good reason why this character would need to be evil; with how the carnival works and the way it both corrupts, and binds people, he could simply have not fully understood what he was in for when he joined, or felt forced to join for whatever reason.
It made no difference to the adventure as a whole, let alone the campaign, and so I opted not to shatter my players view of this NPC, and instead had him be grateful and offer information on what they'd face later.

And… I'm really glad I made that choice.
If I'd just stuck to my guns, the chances are my players would have just grouped him in with the whole carnival in their mind, and mostly forget about him along with everyone else they defeated there.
However, this was several sessions ago now (and over 3 months ago IRL), and yet my players still talk about the laughing man and how they hope to see him again.

It made me realize I had a very black and white view of things; in the same way my players designed their characters, and determine how their intentions and how they act, I design the NPCs and determine their intentions and how they act.
This made me realize though that maybe I shouldn't view things in such absolute terms.
Allowing my players to shape this NPC with their impressions changed him from a somewhat unmemorable character, who was just one of the goons serving this evil organization, to a character my players really enjoyed, felt connected to, and remember fondly to this day.
In fact, I'm now making plans for this character to return, having taken up the life of a paladin with an oath of atonement.

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Anyway, as I said I'm not really saying that this is how things should be, more I just thought it warranted discussion.
In a way, you could view this as the polar opposite of the quantum ogre scenario; in that scenario you sacrifice artistic integrity and remove player agency, where as in this scenario in this you sacrifice artistic integrity and grant the players additional agency.
So I can see that depending on your view of both aspects, you might be avidly against what I did.
In either case, I'd like to hear your thoughts on the matter.

Source: reddit.com

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