There's a balance that has to be reached. I think it depends a lot on the game as to what difficulty level is appropriate.
You don't want to make a game too easy. When that happens, there's no excitement or tension. The game is a cakewalk. You go through the motions of the game, but you aren't being engaged, because you know that your character isn't in any significant danger.
But when you make a game hard, the difficulty is an obstacle to progress. For some titles, that's the point. The enjoyment of the game comes from mastering the gameplay. In these cases, it might make more sense to have a challenging title, because if the player progresses without being significantly challenged, there's not much of a sense of accomplishment. However, if the enjoyment of the game comes from a different place, excessive challenge will only frustrate, even if the challenge comes from legitimate reasons. People won't feel the need to persevere over those odds.
Also, some kinds of challenge don't feel fair to the player. If the player dies repeatedly without feeling like their death was within their control to prevent, they're going to be fed up with the game, and they'll likely stop playing.
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