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For the mod to have an effect, the difficulty in-game should be changed to very hard difficult
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This mod changes the amount of damage you recieve on very hard, making the game more challenging. 
You will also not recieve 50% extra experience anymore on very hard ( just like in NV ).

Vanilla Fallout 3 very hard difficulty
- Player dealt damage            = 0.5x
- Player recieved damage       = 2.0x
- Experience gained modifier  = 1.5x

Ramped up Fallout 3 very hard difficulty
- Player dealt damage            = 0.5x
- Player recieved damage       = 4.0x
- Experience gained modifier  = 1.0x

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How it affects gameplay
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After playing through the game with this setting, this is what I noticed;

Fights are more difficult, obviously
- for instance, the two guards with guns in the Vault 101 Atrium during Escape! were actually 
 somewhat dangerous ( especially when you give the gun to Amata ). 

I used way more chems due to a result of taking more damage
- Med-x, obviously
- Psycho, dealing with enemies faster when there are many is a must, or you'll get destroyed
- Rad-x, I ran out of stimpaks more often and was more frugal with them. So I used Rad-x a lot
 to drink from water sources without getting much radiation
- Radaway, even with Rad-x I got decent chunks of radiation by drinking a lot
- Stimpaks, who would've thunk it

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Recommended mod
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Chem weight + Healing over time
http://www.nexusmods.com/fallout3/mods/12959/?

Who cares about making mistakes when you can pause the game and heal yourself to full health in an instant?
I love this mod, it's very simple and makes stimpaks heal over time.