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Do muggers only spawn when a PC guard is on duty? I've encountered some dead muggers before in town (presumably killed by guards), but never alive. Also, if I do see a mugger, am I allowed to draw my weapon to defend myself, or will the guards arrest me for that?

Well, they wont care if you defend yourself, but they will tell you to put your weapons away still. You can always use bare fists... you can also use your weapon to, but after your done, you best shealth that stuff fast.

Muggers always spawn, pcs or not.