Idiom for a situation/system works internally or in isolation but falls apart in the outer/real world

I'm looking for idioms/expressions similar to these but different (see below):

• "rearranging chairs on the Titanic" is paying too much mind to the details on something that's doomed to fail anyway

• "dead end" is a path/option that you might pursue only to find out it doesn't lead anywhere promising - a let down

• "bikeshedding" comes from software development to mean working on an inconsequential side project rather than the main thing

• "You guys clearly backed the wrong conceptual horse" from Rick & Morty

I'm thinking of situations when people create an intricate system of reasoning which might be convincing and make sense internally, but falls apart when forced to reconcile with more objective realities. Taking false premises and running with them. Over-thinking in a vacuum without enough data.

Or another way of looking at it: a system which seems to operate happily within its own territory despite unknowingly being surrounded by a larger and more advanced system.

Examples:

• Movies: The Village (2004), The Matrix (1999).
• An animal species which continues to survive in an isolated pocket of land but would be out-competed if they came in contact with the more deadly world at large.
• Indigenous native tribes living unaware of imperial civilization.
• When relatively ineffective Tai Chi style martial artists are pitted against highly evolved MMA fighters. In essence a development gap due to isolation.

I think the phrase in a bubble might work for you. From Oxford Dictionaries:

2. Used to refer to a good or fortunate situation that is isolated from reality or unlikely to last.
   ‘we both lived in a bubble, the kind provided by occupying a privileged pied-à-terre in Greenwich Village’

Recently, the term has been extended to the kind of intellectual and knowledge isolation that can happen through certain kinds of web filtering. From Wikipedia (citations omitted; bolding in original, italics added):

A filter bubble is a state of intellectual isolation that can result from personalized searches when a website algorithm selectively guesses what information a user would like to see based on information about the user, such as location, past click-behavior and search history. As a result, users become separated from information that disagrees with their viewpoints, effectively isolating them in their own cultural or ideological bubbles.

I think the bubble concept would work well for the kind of situation you describe, especially with an appropriate adjective. When talking to someone engaging in the behavior in your bolded paragraph, you could say something like

You've created this theory in an intellectual bubble

To take a couple of your other examples:

• The Villagers (and perhaps the indigenous tribe) were protected in their bubble of anachronism.

• The fighter was unprepared once he left his Tai Chi bubble and encountered the wider competitive fighting world.

And so forth.

A similar concept is the ivory tower (also ODO):

A state of privileged seclusion or separation from the facts and practicalities of the real world.
‘the ivory tower of academia’

but that is typically used for people specifically in an academic bubble, as suggested by the first example.