Say a simple free roam battle scene in which a player runs around freely and engages in battle with other enemies/objects, as shown below:

The dragon/dinosaur (or whatever that thing I drew appears to be) will, by some measure, try and avoid attacks so it is modeled to appear to have a conscious desire to avoid pain.

My question is ... since this is very complex, many possible strategies for solving this, algorithms, etc., what is the basic idea behind how this would be accomplished in any sort?

Like, we can assume the enemy in the picture is not just going to aimlessly hop around and avoid, but freely be modeled to behave as if it were really exploring/fighting.

For the best example I can give, witness the behavior of the enemies in Final Fantasy 12 in this video:

http://www.youtube.com/watch?v=mO0TkmhiQ6w

How do the pros, or how would anyone attempt solve/implement this?

PS: I have tried several times to give an image the "illusion" that is has a conciousness, but aside from emulating a real animal's consciousness in complete, I fall short and get choppy moving images that follow predictable patterns, error-prone movements, and the worst imaginable scenario of a battle engagement.