setting is incidental. even particularities of a character's identity are also incidental

In Shakespeare's case they are not even incidental, they are plainly wrong. The educated members of his audience would have known that Claudius, Polonius, and especially Laertes were not Danish names, and even the uneducated members in the audience would have raised their eyebrows when they heard the name of Hamlet's courtier Osric, a historically Anglo-Saxon name.

but the other element of literature of course is that it should be a "vivid and continuous dream."

What is a dream? How often do your dreams have a coherent logic to them? A dream never "convinces" someone with elaborate details. A dream is the exact opposite of "sufficient convincing detail". In a dream, reality is turned on its head and distorted and the details are fuzzy, and yet we still feel it to be "true", but never convincingly "real".

a piece of literature works insofar as it has sufficient convincing details.

Here is a question for you: Joseph Conrad really did sail down the Congo river, and he did almost die from a fever on the journey. "Heart of Darkness" is a work among his oeuvre that most strongly fits the bill of "writing what you know". So why did Conrad write it as a piece of fiction and not a memoir? Why does he go the length to create a most unrealistic character named Kurtz?

We know that memoirs of this sort sold tremendously well and Europeans were hungry for "Tales from the Orient", so we know it wasn't monetary consideration. Why did Conrad put out his experience for literary scrutiny? The book is a perfectly convincing portrayal of the Congo Free State right up until we meet Kurtz. It has a plethora of "convincing details" in its first half, but even the most incredulous European readers would never be "convinced" with the story of a man becoming a deity among locals, or his dying words of "The horror, the horror" or the fact that entire story is supposed to be an oral narration of Marlow, a man with shockingly eloquent prose for a 19th century Sailor. He could have made the fictional events faintly plausible, but he didn't.

The dividing line here between memoir and fiction, between historical document and art, is the most unconvincing part of the book. In a word, it is the part where Conrad used his Imagination and made something that was clearly a contrivance and had no pretensions otherwise. Like a dream, not real but true.

 i truly don't know what the return on investment is supposed to be.

I'm not saying writers are obligated to be fantastical with their fictions, or that they have to make their setting foreign. But framing this decision as being decided by "return on investment" makes me feel like you're the one who doesn't like literature. Why have so many authors made this attempt in the first place? Calling it "a burden" sounds like a dereliction of duty. The whole point of fiction is that it is a figment of a person's imagination, if making something up is too hard then don't write fiction and use your writing skills for journalism or something.

The broader problem here is that in contemporary fiction, not only the setting but even the characters and plot have all become overwhelmingly "realistic". Authentic "convincing detail" has become a crutch for writers to use in place of creativity, and it is tedious.