I guess my problem is not with the wanted status per se, but with the retaliation mechanic. Reporting crimes option I turn off while bounty hunting to not get federal ships in my way while I'm blasting away. Whatever it was set, my retaliating should not be considered a crime.
The problem is that I was attacked and somehow I ended up being the criminal. It's pretty easy to grasp IRL: Somebody attacks you, you have to call 911 and report it while you're getting your face beat in before you can defend yourself. That's why it doesn't make any sense. If this is by design then that's really poor design.
If you are clean and someone attacks you, and if you report that crime, they become wanted. In this case, the person who attacked you was clean, because you specifically asked your ship not to report the crime (s)he committed. When you retaliated, (s)he has every right to report that. As far as the security people are concerned, the first reported action was you shooting a clean pilot.
There is nothing wrong with this design. Reporting crimes is a trade-off: switching it off means you accept that anyone can legitimately shoot you. That's why when you switch it off, the security ships don't step in: no crime has been committed when your bounty fights back.
If you get attacked by a clean pilot, switch it back on, and next time they hit you go wild.
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