I love horror and it wouldnt be a stretch to say ive played all of them around the block (says the guy who has yet to play silent hill...) not that i am upset about it or any thing....ANYWAY if i had to choose, it would be a tie between Outlast and Alan Wake.
My reasons is that im a writer, and love physcological horror. So it should come as no suprise i like the mixture and stephen kind and edgar alan poe. Alan Wake is based all that and is a game where microsoft decided not to screw up the story. Now it isnt neccissarily scary, in fact not scary at all but that is not the point of the game and is not the point of physcological horror, or at least that is what i believe. The game play is tedious, let me get that out of the way. But the story is pretty awesome and left me playing it over and over to fully understand what happened and thats why i enjoy that kind of horror.
As for Outlast i have a brief explanation. Two things: Awesome story if you read through the files, and if you have friends that buy the game, force you to stay up ALL night playing and searching every nook and cranny of the game, in a dark soundless room all by your self strapped to a chair...like mine XD then your bound to be scare. But in all seriousness outlast scared me in a way i havnt been in A LONG TIME. I mean i play so much horror im almost impossible to scare, and Outlast did exactly that. Besides german mythology is cool.