Everything in a game can be measured by time (or real money if P2W is allowed). An item or a state of progression is valued after the time it needs. Death penalty is time penalty: how much time you need to regain what you lost because of the death.
In order to have choices, there must be another way than risking death. There is a reason why Cuphead is a niche game. So the player has a choice to grind X hours to get emblems or to get lucky with a low chance drop to get the upgrade. Or, he can engage in a risky mission that can give him the same upgrade in a single hour if he succeeds but Y hours of grind to get back where he is if he loses.
The time cost of the grinding choice is obviously X hours. For the risky choice, the time cost is: 1+(1-C)*(X+Y) where C is the chance of success. The “1” part is the one hour for the risky mission. The (X+Y) part comes from the assumption that after he failed, he just gives up and grinds. It’s easier to calculate with this than with repeated attempts and the result is the same. The player wants to minimize time to reward, so chooses the shorter one. The risky is shorter if X > 1+(1-C)*(X+Y) which can be solved into C > (1+Y)/(X+Y). Assuming the death penalty is 10 hours and you need to grind 100 hours, you should take the risk if your chance is bigger than 11/110 = 10%.
It’s a straightforward formula. Where is the “interesting decision”? It comes from the fact that your chance cannot be measured, it can only be approximated and it lies on the elusive self-consciousness. The question comes down to “how good I am/the team is in this game”? This is always an interesting thing to think about.
Why did the death penalty diminished, along with the whole MMO scene? Because it’s hard to deny that the MMOs are in horrible shape. The most successful one, WoW is stagnating/losing players for years and there are no serious contenders with even 1/10 of its playerbase.
This is because they made the wrong choice of including entitled punks. Not casuals, not even socials. Casuals, like a middle aged mum who plays while the kids are asleep is aware of her limited skills. She is fine with the grinding. Actually, she likes the easy and interruptible entertainment of being in a magical world. The social is fine being around, being involved with the group instead of being at the tip of the spear. This is crucial: death penalty isn’t a problem to low-skill players as long as they are self-aware and have a grindy alternative path of progression.
The entitled punk is in full confidence in his skill, when he has very little. He will jump headlong into the risky path and loses. Then he blames lag, teammates, play time, cheats, devs, God, but not himself. He is the one who will never go grinding like “the n00bz” and jump on the challenge, just to fail and then ragequit. By removing death penalty there is no downside of this. This became the norm.
Please realize the catch: by removing death penalty, neither the skilled, nor the casual/social players got help. The entitled punks did, the group that you really don’t want in any group game. By removing death penalty, the devs invited the most toxic people: those who look down on fellow players based on oversized ego and blame and curse them for their own frequent failures.
The original MMO crowd of the “golden age” was free of this toxic group because the death penalty got rid of them. Players either learned to play and earned skills that commanded respect or they made peace with their lack of skill and were happy to tag along, picking flowers in Felwood, helping with some consumables and being social (in the good way).
The golden age can be brought back if the death penalties are reintroduced and the entitled punks self-select out.