Here's the situation: Horse sees something potentially terrifying (dragon, piece of paper, blue bucket) and shies sideways on top of his person in an attempt to either a) hide behind person b) climb into person's lap or c) maim person so that potentially terrifying object will go for the lamed prey and horse can escape unscathed.
Here's the person: While dodging 1000 pounds of erratic horse, "It's okay! You're okay! Good boy, good boy, you're okay! Have some cookies. It's okay!" and petting said horse lovingly.
Here's the horse: "That was so scary! And I just got praised for jumping around like a fool. If I do it again, I bet I'll get more cookies when I am done."
This is not okay.
Horses, in a moment of fear and/or confusion, do not need comforting, they need direction. As the leader in the relationship, it is the person's duty to give the horse an idea of how to behave when faced with something startling. It is not about dominating the horse. It is not about making the horse stop. In a moment like that, a horse can not stop. His instinct takes over and he will head for the hills regardless of any humans in his path. Any time we try to "make" a horse do anything, it doesn't become trained. Training is a matter of giving the horse a signal and allowing him to respond to it. As a trainer, the person can choose what signal to use, but it is best to pick something practical and makes sense. It's not in anyone's best interest to teach a horse to gallop with a voice command of "Whoa". Oh! That reminds me of a joke:
A greenhorn approaches a cowboy and wants to buy his his horse. The cowboy says, I will sell you this horse, but I'm gonna warn you. This horse is trained to gallop full out when you say "Thank God." and to stop on a dime when you say "Lord, help me." Thinking that the cowboy is pulling his leg, the greenhorn laughs and buys the horse on the spot. He mounts up and gives the horse a kick. The horse does nothing. Greenhorn slaps the horse with the reins. Nothing. He hollers "Giddy up!". Nothing. Feeling foolish, he finally says "Thank God" and the horse takes off like a rocket. The greenhorn is enjoying the speed with which his new horse is covering the ground mile after mile, but up ahead, he can see the edge of a canyon. He sits back in his saddle and says "Whoa!". The horse gallops on. He frets a little and pulls frantically on the reins. The horse is still galloping full tilt toward the edge of the cliff. The greenhorn fears for his life and grabs hold of the saddle horn and prays "Lord, help me!" The horse stops dead, right at the edge of the 200 foot drop. Feeling tremendously relieved, he wipes his brow and says "Thank God".
I didn't write the joke, but I sure did enjoy telling it when I was a kid. The moral is, don't be a greenhorn. Be a leader. Take charge. Assure your horse that when he is with you there is nothing to be afraid of. It is necessary that the person in charge isn't afraid of blue buckets or pieces of paper. A person can not be afraid that her horse is going to be afraid of something. The horse senses that and becomes suspicious.
Should the person act as if there's no big deal, nothing scary here, no reason to get excited, then the horse will feed off of that calmness and confidence. That's not all though. As the leader, the person has to give some direction. When faced with dragons, the person needs to give her horse's feet something to do so they won't be dancing on her head. Sometimes, a horse just can't whoa, even if you pray. The instinct to run away is so strong that an argument will ensue should a person ask a horse to whoa when that dragon shows up. However, giving the horse a direction to go, especially back, gives him something to do rather than dance on his person's head.
Giving the horse something to do isn't punishing him. No one is telling the horse he is wrong for spooking. We are telling the horse, don't spook on top of me. Tell the horse to stay over there, to back up, or to piaffe (as I did with one habitually spooky horse) when he is scared. Do not praise him him or comfort him when he tries to use you as a staircase to escape. Just be cool. Be calm. Don't get excited. Be matter of fact. This is my space, horse. That is yours.
Additionally, don't let a horse look at the dragon. Get his attention. The leader needs to say "Pay attention to me, not that. Follow my directions and you will be okay." When I'm riding a horse and we come upon something scary, I want that horse to turn to me for guidance. If I let him fixate on the dragon (or cow or mailbox), he's not paying attention to me and I've lost my leadership. If I give him something to do, it redirects his mind. If I can get a horse to move it's feet, I can get it's mind back on track
Eventually, the horse will become less surprised by blue buckets and dragons and will hold his ground when faced with such monsters. It takes time and consistency a horse to develop trust in his person. The cool thing is that it does happen. Thank God.