I hear you, I play 1-2 games with 1.1 before I noticed this setting for each faction. While the setting may have been wired to the world difficulty it was not selectable for each faction prior to 1.1 on the startup screens the way it is now. It helps but the AI could have wiped me off the map 10 times over but it did not. Then the faction I was at war with sent their sov over solo to my territory, they no longer exist in this game. This AI problem needs to be fixed. The AI needs to TRY to WIN even if it cannot. And on the highest game difficultly settings the AI needs to win if it can win easily. More than that it needs to stop doing bone-headed stunts.
