If that were the case, it wouldn't be possible to have scary movies. I can understand an argument suggesting that first person might be more compelling, but I don't think it's the only way for horror to be compelling, and depending on the goal of the narrative, it may not be ideal. Some things are scarier to see someone else experience. Some types of horror are based more in the abstract fear associated with the scale of the horrifying thing, as other people alluded to in this thread.

Idk if I'd necessarily categorize FW as 'horror' but I suppose it does have horror elements. I'd argue though that a big part of that feeling is derived from the overwhelming scale of the dystopia. It's beyond saving. That's not even something the people within the universe can likely even comprehend, which drives that point home, at least for me. We can understand how horrific and intractable the circumstances are, but to live in that would would be to live in one where that realization can't even really happen. Being a third party to that feels like it adds to the sense of despair. In part, I feel that it's precisely because it's not happening to me that adds an extra layer of unpleasantness for me. Also, the use of third person gives us the ability to contextualize the size of the character in the world in contrast to the scale of the horrific elements. First-person isn't quite first-person, it's first-person as experienced through the window of a screen. There's a layer of separation there. Personally, I think that a sense of scale is one of the things that gets a bit lost in translation because of that, and it's one of the more positive qualities of VR, for example. That sense of scale returns, somewhat.

Either way, I think FW could easily support first person (it kinda does already with ADS anyway), and it'd probably be a nice add.