I have been thinking for a number of years about this particular nut, and while the granddaddy of rpg horror, Call of Cthulhu has the GM facing Sanity mechanic, I have been trying to think of something that is more player facing. The problem with horror in rpgs is that traditionally, rpgs have a winning condition of player characters overcoming the opposition in some fashion, which implies power as a needed resource to win. But powerlessness is much more the grist for the horror story genre, so you have to somehow, make powerlessness the currency in a horror game.
Here is the latest refinement in my thinking on this: characters have horror condition boxes (or points, or whatever) that relate to different horror reactions - "queasy", "shaking", "paralyzed", "screaming", "cowering", etc. These all describe an action that the player chooses as a response to some horriffic circumstance. It is key that the player choose it so that they get the buy in for their character. But what do they, the player, get out of this?
This is not very different at all from the conditions as presented in Fate System Toolkit so far. However, the difference, is that the player chooses and for every level of response (and it's equal level of inconvenience) they degrade the action budget of the GM for the opposition. In other words, the GM has a monster, and that monster has a danger rating that equals the total bonus budget that the monster gets for the encounter to rip the characters faces off and slurp out their juicy brains. But if the characters are queasy, shaking, and hide, they get to reduce that budget (which may also pull them back from confronting the nasty thing in the first place).
The other half of the nut, is then how to keep the PCs from turtling so far that they don't confront the threat and let it win... but that is for a bit more thought...
