Well, given that the rules refer to committing cold-blooded murder, you've misunderstood.
So a minute ago, you said "it's not expressly mentioned." Now you say they refer to committing cold-blooded murder. Which is it? Where does "committing murder" fall under pain, surprise, fear, or wonderment?
Is that based on personal experience? Empirical research? Or mere conjecture?
In
your example, you have PC 1 see that PC 2 had put an NPC in a headlock, and decided to kill the NPC. According to your example, that NPC was helpless--that is, he wasn't attacking anyone, he couldn't cause anyone any harm.
How was that frightening? Or painful, or awe-inducing?
And that's ignoring the
fight part of the fight or flight instinct people have when frightened! Dude has a weapon and is already a bit bloodthirsty, and he sees his companion is in combat with a foe. Why wouldn't his fear transform into fighting? Is
that an option for a failed Steel check?
For that matter, how is this cold-blooded? Unless PC 1 (meaning Player 1) thought that PC 2 was a psycho who routinely attacked innocent people for funsies, the it would seem that PC 1 should logically feel that PC 2 had partially subdued a threat that needed to be killed, or at least knocked unconscious and then tied up. Calling his actions cold-blooded murder sounds like a bad GM call.
And if PC 1 did think that PC 2 was a psycho and was willing to kill her target anyway, then he's clearly fine with cold-blooded murder and wouldn't hesitate.
Now, if the NPC was some sort of horrific monster I can see PC 1 being frightened. If PC 1 was squeamish or pacifistic, I can see him being frightened--but then he was also RPed badly because killing a person shouldn't have been his first instinct.
For that matter, if character's first instinct is to kill someone, and this is enough in character that the other player didn't say "Whoa, this is new!" then he's not going to hesitate in the first place!
Especially when he has a trait "I'm never wrong." (Which you've said doesn't matter, meaning that traits are pointless in this game, giving it another negative mark in my eyes.)
If I
personally was in a position to kill a person, I'd hesitate. I'm not only not violent, but I don't like committing violent acts. But I also (a) don't carry a weapon and (b) don't see someone in a headlock and immediately think I should kill them.