I wonder how much of the increase in Santa belief between 5 and 7 relates to them understand the should lie when asked that question? Extremely young children tend to be fairly direct, but 7yo are wiling to play make believe for attention.
I used to talk to my WWE (WWF back then), GI Joe, and Transformer action figures. As a 5 year old kid, you realize that they aren't real. But you don't think that talking to them is anything out of the ordinary.
My guess is that kids talk to imaginary friends because talking is so new and they just learned how to talk so they want to do it all of the time.
As a 5 year old kid, you realize that they aren't real.
I've seen a lot of parents go a little cuckoo with fear and frustration because they don't understand that. The kids get frustrated and stubborn because the adults don't get that it's very important to pretend that they're real. Kids can go a little overboard with the inconvenience and even danger their fantasies impose on them, but they know what's real and what's not. Their crazy parents don't give a crap about anything except their overblown fear that their kid is suffering from some delayed or derailed development that will affect their SAT scores someday.
There are also parents who are fine indulging their kids' whims except where it involves fantasy. They'll smuggle a ziploc bag of corn into a restaurant because their kid won't eat mac and cheese without it (seen it happen), but they'll yell at the same kid if she takes an extra twenty seconds helping an invisible rabbit into the minivan after dinner.
There doesn't have to be a binary distinction between real and imaginary.
I use to talk to my toy soldiers, I knew they weren't alive, but I wished they were. So they were somewhere in between perhaps.
It is very important for children to setup make-believe situations and use their imagination. I think that is a good way to later develop planing and abstract thinking skills.