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Source Horror Adventures pg. 10
In a game where terrible things lurk in the darkness and horrors crawl forth from nightmares to plague the living, the rules for fear are an important part of play. To help bring an appropriate atmosphere to the table, the following rules broaden the levels of fear and allow fear to have a greater impact on your character and the story.

Levels of Fear

Source Horror Adventures pg. 10
The existing rules for fear offer three levels of fear, each one represented by a condition: shaken, frightened, and panicked. The following system expands the various states of fear into seven levels, divided into two groups (lesser fear and greater fear). The three levels of lesser fear—spooked, shaken, and scared—cause you to take penalties, but you are still ultimately in control. The four levels of greater fear— frightened, panicked, terrified, and horrified—cause you to progressively lose control of your character.

When you are subject to a fear effect whose level exceeds your current fear level, your fear level increases to that level. If you are subject to a fear effect of a level equal to or lower than your current fear level, your fear level usually increases by one. However, multiple lesser fear effects can’t force you to progress from a lesser fear level to a greater one. If you are scared and are subject to an additional lesser fear effect, you are staggered for 1 round, rather than becoming frightened. You can, however, accept the frightened condition rather than be staggered while scared if you prefer (such as if you actually want to run away).

For example, Merisiel is exploring a haunted graveyard. Her GM declares she is spooked by her surroundings. She falls into a sinkhole filled with rotting corpses, which would also make her spooked. If she fails her Will save, her fear level increases to shaken. Later, after dealing with gruesome undead, she is scared and facing off against an evil cultist who casts doom, which causes the shaken condition, on her. If she fails her save against the spell, she is staggered for 1 round (rather than frightened), since shaken is a lesser fear effect.

Fear Duration

Source Horror Adventures pg. 10
Using this system can make the tracking of your overall fear level a bit more complicated. Track each fear effect separately, evaluating your current fear level whenever an effect is added or removed, starting with the most severe effect and adding levels on top of that for each new effect. Remember that lesser fear effects cannot add up to a greater fear effect, regardless of their number, and the staggered condition that can result from being scared and then suffering another lesser fear effect applies at the moment when the new fear effect begins (not when it expires).

For example, Ezren becomes subject to an effect that causes him to be shaken for 1 minute and another that causes him to be panicked for 1 round. On the 1st round, his fear increases to panicked. On the following 9 rounds, he is shaken. If, on the 3rd round, he becomes spooked for 1 minute, he becomes scared for 7 rounds (the overlap between the spooked condition and the remaining rounds of the shaken condition), then spooked for 3 rounds.

Adding Fear

Source Horror Adventures pg. 11
This revised fear system is meant to work seamlessly with the existing rules for fear, so GMs should use this system as an opportunity to add new fear effects to their games, including those derived from the environment and various situations. For example, entering an abandoned asylum during a moonless night might cause all the characters to gain the spooked condition, while discovering a cabinet filled with gnawed bones might cause a character to become scared for 1 minute after a failing a Will save. GMs not using this system should use the next-lower condition from the Core Rulebook if one of the new conditions appears, so anything that would normally inflict the spooked condition has no effect, scared becomes shaken, and terrified or horrified become panicked

Fear Immunity

Source Horror Adventures pg. 11
A number of creatures and characters are immune to fear. While that is fine for most fantasy adventure campaigns, it can prove problematic for horror-themed campaigns. GMs running such games should consider changing fear immunity to a form of resistance. Creatures and characters with fear resistance track their fear levels as normal, but they take the penalties of the fear level two steps lower than their actual level (thus, they suffer no effect at all unless they are at least scared). Furthermore, effects that normally cause a character to become spooked or shaken don’t increase such a character’s fear to a higher level.