I think I’d remove the “stupid” bit though; a lot of people who live their fantasy life in their head seem to be much happier in general than those of us who hold up such things against a backdrop of critical thinking.

They don’t, however, seem to learn from their mistakes or improve their lot in life, except by accident. But they’re generally quite happy at the expense of the people around them they invariably impact by remembering what never was. Some people will abandon them to their fiction after attempting to help them escape it, but others will enable them, trying to create a semblance of the reality that would never happen naturally. See the US government for a fascinating case study of how this plays out.