What is the difference between the difficulty levels?

Question

S.T.A.L.K.E.R.: Shadow of Chernobyl has four difficulty levels, ranging from "novice" to "master":

Kryomaani · Accepted Answer

Please be aware that the other answer to this question is based on a common misconception of how the difficulty works, and is mostly false.
Here's a table that shows the actual differences that the difficulties have (courtesy of /u/Voroseeg from Reddit):

These values have been directly lifted from the game's data files. As we can see, the player is perfectly accurate on every difficulty in every game in the series, there is no hidden accuracy value and every bullet that hits an enemy will deal damage and is never randomly ignored. The existence of such a variable is a common misconception caused by the relatively high spread of early game weapons causing shots to often land quite a bit away from the center of the reticle. This behavior can be easily verified by shooting at enemies point blank and noticing that indeed 100% of the bullets that connect with the enemy hitbox will have the expected effect.
Many mods claim to fix the player accuracy issue, however, this should be taken with a pinch of salt, as the issue never existed in the first place. Thus, those mods that claim to do so only edit some entirely unrelated values the modders haven't properly understood and possibly have other unintended consequences.
The matter of enemy accuracy is a more complicated one, as indeed the game files do include different values for each difficulty, but only the novice difficulty values will ever be chosen. The reason for this is not known, it's possible that it's a bug in the code or that the developers simply decided to dummy out the feature later in the game's development. Thus, the enemy accuracy is also entirely independent of the difficulty, and merely a function of their distance to the player.
To sum it up: The actual effects that different difficulties do have in Shadow of Chernobyl are simply:

the amount of damage the player's weapons do
how much damage the player takes
amount of loot on corpses and in containers

There are no other effects until the later games in the series.

Nelson · Answer

STALKER's difficulty is very, very strange.  Here is an excerpt taken from this article

S.T.A.L.K.E.R: Shadow of Chernobyl has one of the oddest ways of
  scaling difficulty I’ve ever seen. As you increase the difficulty, the
  percentage chance your and your enemies’ bullets have of hitting goes
  up, capping at 50% on Master. This means that for every shot that hits
  the intended target on Master, only half of them (on average, of
  course) actually register as a hit. I started playing this on an
  easier difficulty and couldn’t figure out why I couldn’t hit anything
  at all at first. When I discovered the reasoning for this inaccuracy
  after some research online, I started over on Master to try and ease
  the pain. I will say that it helps the feel of the game tremendously
  and will actually recommend that anyone who is willing to play
  S.T.A.L.K.E.R: Shadow of Chernobyl play on Master, but it still never
  felt fair to me, even when the enemies had the same restrictions.

So this effect is in addition to increased damage, so even at "MASTER" difficulty, you can unload bullets right in someone's face and do no damage.

There is a COMPLETE mod that removes this bizarre behavior.  If you find the vanilla behavior utterly bizarre and frustrating, you can use the mod instead.

What is the difference between the difficulty levels?

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