On first playthrough, it depends on my experience with the franchise and genre. If I have little to no experience in a genre, I'll choose easy at first and restart on a harder difficulty if it's too easy. But if I'm familiar with the genre or especially franchise, I'll often choose hard and up. Unless it's notoriously hard, in which case normal is what I end up choosing.
I go with whatever the default setting is. My theory is that is how the game is meant to be played. I'm not so sure how much that theory holds up though. Sometimes it really feels like the default setting is cruise control mode on newer games. Other games don't even feel right on the default setting. Parts of combat don't even matter or any depth the combat might have had was stripped out for normal mode. That really sucks and it makes me at least look at the harder difficulties out-of-the-box to see if I'm getting cheated on gameplay in normal mode.
It usually depends on the game. If there's a nutsoid option that's greyed out, then I'll usually pick the hardest below that, because I know there's a level to step up to that's going to be more punishing than my first playthrough.
If I'm already aware that there's a hidden hardest mode in a game, like Dead Space, I'll always pick what is the hardest setting on initial play to make sure the really difficult shit pops up.
Halo I'll always play on Heroic first time through, then Legendary the next. For whatever reason (and I've stated this before) Legendary is always a cinch that way.
So, yeah. I like things to be pretty rough, but I still like to know what I'm getting into before getting my arse truly kicked.
" Normal, or whatever the default might be. "This. Unless it's a God of War/Devil May Cry type of game, in which case I play on whatever the easiest setting is, because I suck at that type of game, but occasionally subject myself to it anyway.
Normal, because odds are that is what has been play-tested. Harder modes usually just alter metrics and nothing else. It does depend on the game though.
If the game is good enough, I'll try the harder modes to see if it improves anything or if I plan on reviewing it. The depths of the mechanics really reveal themselves on the harder modes.
The lowest I will go is normal for games of which it's contents and mechanics are unfamiliar to me, or if I feel that I would need to have a feel for how the controls handle first. Otherwise I would move on to as hard a difficulty as possible, going down if the difficulty level ruins the fun in the game.
Sometimes I scale the difficulty back if the elements that are scaled up become more tedious to overcome. An example is Oblivion, where increased difficulty led to stronger enemies with so much health that it was tedious to me. The fact that even rats took more than a few hits to kill at the beginning of the game was absurd.
" I check the achievements/trophies, and if there is a lot awarded for playing on hard then I'll choose it. Otherwise I go normal. "This. I usually play on Normal, unless there are Achievements for beating the game on Hard. Lately, I've been starting directly on Hard, though. I beat Battlefield: Bad Company on PC on Hard yesterday, and, to be honest, there was really no incentive behind it at all. It really depends on the game.
I usually play on Easy or Normal settings. I never really understood the attraction to a high difficulty level. Sometimes I do play stuff on hard (or whatever the highest setting is for the game), just to see if I can not get destroyed. But I never really was able to have fun while getting my ass kicked by AI, maybe I'm just weird like that though. On some games (like God of War) I have to play on Easy or it's just impossible to get anywhere- for me, of course.
I choose normal. It's for the player who likes to enjoy combat.
But yeah, I usually pick normal. It's still fun in most games, and until you've been through a game at least once, you don't know how hard a game is going to be. Imagine if you started Devil May Cry with its difficulty or Mass Effect 1 with its autosave issues and didn't know what you were in for. Not what I want in my experience, anyways.
It also depends on WHY the game is hard... there's all kinds of poor game design choices that can make a game difficult in a totally un-fun way.
Generally I pick normal, unless it's CoD, and then I pick Veteran. Mostly because there are so many CoD Veteran achievements. BFBC2 I picked Normal, because the only Hard achievement is for one level (I'm assuming the last). SW:TFU I don't play on hard because that requires a warm-up round first, and I don't play it that often anymore.
Pretty much all RPGs I play on Normal, because I really don't play them just to prove I can play on Hard. Although I did play through the DA:O DLC on Hard for achievements.
It kind of depends. If the game has 3 difficulty settings, I always go with Normal. But if it has 4, I go with the second hardest. I rarely go back and play through a game a second time on a harder difficulty, and when I do it's only just for achievements. (I.e. Halo: Reach and Mass Effect 2)