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I've done exercises in and out of the military that used the local population as participants. The locals are great, play their parts well, provide great experience for the people being trained. Some are paid, some aren't.

One of the funniest things I ever saw was a boating while intoxicated lesson for some Coast Guard boarding officers. They took some paid role players, provided them with a stocked liquor cabinet in an adjacent classroom and had the Coasties do sobriety tests on them. Pretty hilarious, and valuable.