Welcome to the human condition. Evidently, the human imagination predicts well in the context of small family groups in the wilderness. Have a society with enough complexity to merit laws, and the imagination isn't so finely tuned.
What makes you think it works on small family groups? All we can conclude from ev-psych is that making stuff up didn't cost the imaginers much reproductive success personally - we have no idea what it did to the actual victims having stories made up about them.
I suspect that in small family groups in the wilderness, much more of our imaginings concern the environment and non-human agency, and fewer concern the actions of the group.
