Has anyone ever tried "design by play"?

I did this once with a friend. We established a theme (Nightvale meets Cowboys), sketched out a town setting with a few key NPCs (skeleton man, Dr. Mayor, outlaw gang that run everything), came up with a PC, and just started "playing."

I GMed, and my friend would just say what their character did until it seemed like we should roll dice. Then we'd roll 2d6, make up an appropriate stat or use one we'd already made up, and I'd improv what happened based on the usual strong/mixed/fail. It was all very PbtA.

As we went along, they'd suggest things that were in-theme, and I'd accept or modify, while codifying certain things into game rules. Like the Big Hat that gives +1 to Bronco rolls when worn.

It was all very free-flowing and improv-y, and at the end of it, I had this whole game session to draw on while formalizing the rules further.

I guess I'm curious if this technique already exists, has a name, and if anyone else practices it. I would love to explore it more and learn more about its boons and limits.