Peltzman Effect (Risk Compensation)

Sam Peltzman's finding that safety improvements often fail to reduce overall harm because people compensate by taking more risks—adjusting their behavior to maintain a constant level of perceived risk. Seatbelts make drivers feel safer, so they drive faster. Safety nets make workers feel protected, so they take more chances. Antilock brakes reduce skidding but don't reduce accident rates because drivers brake later and harder. The mechanism: humans have a 'risk thermostat'—when external safety increases, they increase risk-taking until they return to their comfortable risk level. Safety improvements change WHERE harm occurs, not WHETHER it occurs.

When to use it

When safety improvements aren't producing expected reductions in harm; when protected individuals or organizations are taking more risks than unprotected ones; when designing safety systems and need to anticipate behavioral responses; when moral hazard from safety nets is suspected.

How it can help

When implementing safety measures: anticipate risk compensation and design countermeasures. The naive assumption is 'add safety → reduce harm.' The Peltzman-aware assumption is 'add safety → people take more risks → harm may not decrease.' The intervention: add safety measures that are INVISIBLE to the user (so they don't trigger risk compensation) or pair safety measures with risk-awareness training. In product design: safety features that users are aware of may be partially offset by riskier use. In finance: insurance and bailout expectations increase risk-taking (moral hazard is a form of risk compensation).