They way I would implement this if I was a dev would be to have the difficulty level set at three levels ,

1: Story mode , this mode will be the least difficult and intended for people who just want to enjoy the story and they have minimal gaming skills. This will not be a creative mode though and the player can lose if they are not paying attention during the tutorial and don't have basic skills.
This mode can also serve as an extended tutorial that will take a non-gamer and teach them the skills to be a gamer.

2: Game mode, this mode will be for the average gamer with average skills , it will be moderately difficult , but not too hard.

3: Nightmare mode, this mode is for gamers who want to push the limits of their skills, it will be extremely difficult , the AI will be smarter , there will be more enemies and they will have more health.

4: Ironman mode, this would be an option for nightmare mode where the player gets only one life and they only get exit saves (no saving and reloading at will), if they die that is it, their exit save is deleted and they have to start again.

Although I do like the idea of dynamic difficulty scaling , but I would like the difficulty to be set within ranges for each mode with the game scaling the difficulty based on how well you are doing
calculated from metrics like accuracy, K:D ratio & time between checkpoints. And if the system thinks you are ready for another mode it will let you know at the end of your play through if you it thinks you are ready for a harder mode and it will offer to lower the mode in mid game if they player is struggling.

And make it only possible to downgrade difficulty mode in the middle of a play through, If the player wants to go to a harder mode they will have to start again.

And the game could have a special set of achivements for Nightmare & ironman modes and bonus content like special endings for those modes.


Of course this would be very hard to implement , but it would make a game awesome if it had this feature.