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Please, do not include MMOs in this concept. Due to their nature, they cannot be paused at all which this concept does not describe. The appropriate concept for MMOs is No Game Pause, which describes when a game does not offer a pause function at all and already implies that gameplay won't pause while in menus, etc.
When this mechanic is used, the game world does not pause and thus creates tension since the player is forced to keep an eye on their character's surroundings while navigating menus or fumbling around in the inventory.
This mechanics is predominantly used in survival-horror games due to the high amount of tension and potential for creating panic.
Visceral Games was marketing Dead Space's seamless HUD integrated into game world. All in-game menus are projected into the game world from main character Isaac Clarke's suit and you can even keep moving around. Unlike games like the older Resident Evil entries, the player cannot find a moment to breathe by entering a menu or safely weighing using limited heavy weaponry against using health kits in the inventory.
The Legend of Zelda: Skyward Sword
When Shigeru Miyamoto showed off Skyward Sword for the first time, he made it a point to highlight this feature as part of their Wii MotionPlus focus. They didn't want to take the player out of the game by having them stuck in menus while switching items or drinking potions so they created the inventory in a way that let the players move the Wii Remote like they're reaching into their pocket after pressing the inventory button to instantly access and activate all items at all times.