Real Cavalry won't charge a tight and ready formation, but totally destroy a scattered unit.
I don't think the "Scary unit" effect differentiates based on formation. So your cavalry would be scared even if half the spearmen were off having a siesta. And it isn't as if horses can't fight in the midst of spearmen. They just don't like to run into them, which isn't a proper allegory of the game's morale. It would also cause cavalry units in combat with other unit types, say Slingers, to get scared if a few spearmen wandered by close enough. Besides which, why would the fear effect be needed? It isn't as if cavalry have any trouble dying if you charge them straight into a phalanx.
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