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In the King in Yellow Herald variant, there is a rule about increasing the terror level (emphasis mine):

The blasphemous play "The King in Yellow" is being performed in Arkham. Every time the terror level increases, the investigators must do one of the following:

A: Place a yellow sign token in the space just vacated by the terror marker.

or

B. Place a yellow sign token on the doom track as if it were a doom token.

There are ways to reduce the terror level increase, such as the Director's Diary:

Discard this card when the terror level is increased to reduce the amount by which it is being increased by 1.

What is the order of these two events? Do I place a yellow sign token first before I reduce the terror level? Or do I reduce the terror level and then not place a yellow sign token because it is staying the same?

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Using this card when the terror level is increased by 1 would effectively make it increase by 0 and prevent the requirement to place the yellow sign token. Notice the wording of the card is to discard it when the terror level is increased to reduce the amount increased. If it had said something along the lines of discarding it to decrease the terror level, then one might construe that to mean the terror level increased then decreased, but in this case it strongly implies you are cancelling the action, not subsequently reverting it.

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