Just reports from other parents who regret not stopping it early on. Their children would make fantastic stories about who was to blame for their mistakes, the parents would laugh and let it go, but the behavior didn't stop and only got worse. I kept that in mind when my kids reached those ages and did the same.

That might not be lying per se but rather an inability to take responsibility. I have two nephews-in-law, there's a dynamic there that sometimes happens between brothers where the younger feels it's unfair if he doesn't get to do / be allowed all the same things as his older brother, but he isn't mature enough, inserts himself anyway, and gets mad and acts out when it doesn't go well for him. The older brother, unable to get the younger to just chill, settles instead for goading the younger one until he melts down.

Anyway there've been instances where after losing at football or Minecraft or whatever, the younger nephew has launched on a long monologue to us about how the contest was unfair, that really he should have won, that actually if you look at it a certain way he did win, yes he won and his older brother lost and... on to increasingly fantastic made up story about what happened.

It's not so much lying as a "revisionist history" with a magical realism element. It's almost like... grit gone wrong. I.e. grit would be, "I failed once but I won't accept failure permanently and next time I'll try a new tack" versus this is, "I can't accept failure therefore I must justify and explain why I actually was perfect."

I find this behavioral tendency worrying.