As I understand it, radiant AI had to be scaled back in earlier games by taking a shotgun to its groin, because otherwise NPCs would end up massacring eachother.
My suspicion is that this is because NPCs had exactly three reactions if other NPCs hit them, steal from them, or otherwise triggered a disposition change:
1 "I'm Oblivious!"
2 "Hey, I'm on your side!/I see wut u did there!" (OK, maybe they only said this to the PC, not sure).
3 "GRAAAH! FITE TO DETH PLZKTHX!"
I propose scrapping the first level, and adding some more levels to more accurately reflect reality.
1 "Hey, I'm on your side!/I see wut u did there!" - verbal acknowledgement of wrongdoing and a warning. Important first step in escalating hostilities... or in changing people's behaviour so that they don't need to escalate.
Opponent reactions can be: insult, ignore, apologise but continue with action, apologise and change selected action. "Sorry, I'll be more careful."
2 "What do you think you are doing? Were you born in a Vault?"...etc. Insults are the lowest level of conflict in real life. They do sometimes escalate, but they deal no damage, and conflict at this level has a good chance of defusing itself. It serves the purpose of making the NPC stop his activity and respond instead to the insult.
Opponent reactions can be: bitchslap, insult, ignore, apologise but continue with action, apologise and change selected action. "At least I wasn't born in a brahmin-shed!"
3 *BITCHSLAP* Yeah. You know you want to slap that annoying fan. Well, so do NPCs. Now they get to. A zero-damage physical attack, perhaps with brief stun and knockback, and a deeply satisfying sound. But it's zero damage. Could escalate, but still, not necessarily.
Opponent reactions can be: attack, bitchslap back
(should be low %chance, or can get silly like the link), insult, ignore, apologise but continue with action, apologise and change selected action. "Eh sorry - guess I deserved that." "What was that for?" "Hey... *slap*!"
4 "I'm gonna beat you like a redheaded stepchild!" Even when you enter the realm of doing physical damage, there is no earthly reason that anyone would want to fight a friend to the death. Their goal in combat is to beat their opponent until he gives in or falls unconscious - NOT to kill. They won't draw a weapon.
Opponent reactions are prettymuch defend, surrender, or run, like with any combat, but they do have the option to also escalate the combat by drawing a weapon... but this would not be common. Nobody in a bar brawl whips out a gun or a knife. It's just not done. Surrendering on either side is very likely to be accepted, though they might give one last [censored]slap or curse.
5 "GRAAAH! FITE TO DETH PLZKTHX!" - Between faction members, there is no earthly reason to fight to the death for anything less than a murder. Even in a fight to the death, NPCs should be able to at least try to surrender to eachother.
Opponent reactions as above. Surrendering on either side might not be accepted, but offering it might move the combat down a notch to just a beating (same mechanism as previous, really).
Hope that makes sense. In human interaction, we have many social tools to prevent violence, and one of those is violence escalation levels. Even in murders, it is very rare indeed for someone to switch straight from normal to a murderous rage - they generally slide through "verbal abuse" and "punishment" first. And the vastly overwhelming majority of people who enter those first two conflict levels do NOT go on to the "murderous rage" step. People carrying weapons do not always draw them in combat: in fact, against friends, they almost never do.
So, it's not just the player who could benefit from nonlethal combat.
But, what about the long term? If someone's beaten someone else unconscious, should that affect their disposition to eachother? Make the NPCs avoid eachother more? Likely, yes.