I think encumbrance adds something really important to the game but it’s really delicate. Namely, I think the pacing of games is better when encumbrance exists compared to not.

What encumbrance does is force you to make some decisions about loot right now as opposed to later at the merchant. I have to decide to pick something up intentionally because I don’t want to have to deal with all this junk later. When I later go to a merchant, I only now have stuff in my inventory that either (a) I want to have on hand to use or (b) I think will be valuable to sell.

A game with no encumbrance does not enforce this part of the decision making on you. You no longer are required at pick-up time to make any part of that decision. As a result, players are less likely to interact with loot at all until they get to the merchant. At which point they now need to spend much more time sorting through their stuff to figure out what to sell or keep. In other words, the optimal way to play becomes simply clicking the take all button on every container you find and dealing with it later. I personally would find this interact worse as the chore of dealing with it becomes bigger and bigger and harder to manage with no in game penalty for doing this to yourself. Basically, players have to choose to play the game in a way that’s fun rather than being forced to play the game in a way that’s fun.

There’s also a second important thing that encumbrance adds to games like this: scarcity of resources. Not scarcity in a sense that resources of any kind are hard to come by, but in the sense that the player has to purposefully make decisions in order to amass things like gold or camp supplies. With encumbrance, I could still just take all every container until I fill up, but then I would have an inventory filled with worthless junk which might sell for much less. Or I might have less room for camp supplies. What I think most players will end up doing, though, is being more selective about what they pick up, enabling them to be more efficient with their sold goods and inventory space to prioritize things that help them succeed. Without encumbrance, this entire aspect of gameplay is removed.

Sure, it might feel bad in the moment to have to make a decision between two items for the sake of encumbrance, but I think the value it adds to the game is generally more than it takes away.