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How so, LazarX? I'm sidin' with Rob on this one.
If the party of four with the loss is in my judgment almost certain of a TPK if they continue as they are, (and I'm judging player skill as pert of the equation) I will make the adjustments to the module for a four player party. Point is to CHALLENGE players, that means giving them some risk of success.

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I don't think that's allowed, LX.
If the APL is between the sub-tiers, that would switch them from high sub-tier to low. Would you give them high-subtier gold for the encounters they fought high, and then low-subtier gold for battles they found after you bumped them down?
If you get the sense that continuing forth is going to be a party wipe, see if the remaining players agree. If they do, quit. But I don't think we're allowed to bump parties up or down sub-tiers. or turn the small-party adjustment on or off, depending on whether we feel they need more or less challenge.

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Finlanderboy, please correct me if I'm wrong. (It's possible!!)
The way I understand the current rules, if you have a party of 5 or six PCs with an APL of 5 in a Tier 3-7 scenario, they play sub-tier 6-7 with the small party modification. But a party of 4 PCs with an APL of 5 plays in sub-tier 3-4, without the small party modification.
If you adjust on the fly, where do you stop? If there's only three players left alive, does the GM bring in a pre-gen from off-stage? Play by the rules of the campaign, guys.