when u say retaliate in full if u mean annihilate them by sacking and destroying the faction i think that should give u a bad reputation and make all other factions vary of you.
unfortunaely(or fortunately depending on your point of view) this is how the game is programmed it cant be changed unitll its remodelled. but for slow players like me it doesn't make much of a difference.
if some one attacks me i just take away his offensive capabilities and sue for peace. any territiories taken are given away to allies or given back to the original owner in return for vassalage.
once i've carved ou my niche i cant be botheres managing all those provinces.. i'm lazy
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