This is one of the most valuable posts I've seen in a long time, thanks everyone for this discussion.
I want to make sure I understand something. So, World Threat is a setting to set the aggression level of non-player entities, is that correct? So this affects Free Cities and monster dens.
But this thing is.... Vassals are not non-player entities. Free Cities are, but once they become vassals, they are now a part of (one of) the player's empires. Whether this is one of the AI opponents or a human player, either way they are no longer neutral and belonging to 'the world'.
Is it possible Vassals could just be removed from the world threat setting altogether? It seems that once a player has a vassal, they should have full war capabilities, and once the AI has a vassal, it should use the AI difficulty to determine their threat. If the AI is set to Easy, then all of their vassals should be passive, it seems.