The Peltzman Effect: How Safety Perception Increases Risk

Source: TradeStops.

It is always nice to learn that something known has a name. The Peter Principle is one classic example, or — my favorite — Gresham’s Law.

The Peltzman Effect is relevant because it was the reason our CDC and the WHO originally discouraged the general use of face masks as a prophylactic for coronavirus spread. But the effect is interesting in its own right as a psychological insight and possibly even as a contributor to social/political trends.

I’m reminded of Bugs Bunny who, after running off a cliff, remains suspended in the air. Instead of falling as expected he says to the audience, “You might think I’m defying the law of gravity. But you see, I never studied law!”

3 thoughts on “The Peltzman Effect: How Safety Perception Increases Risk

  1. When soldiers and cops don body armor…

    There was a USMC general back in 2002/3 who commented to Congress that he wanted to do away with body armor because he was taking too many WIA. He worded it awkwardly, talking about $-costs of lifelong medical expenses, and was pounced on because people thought he was implying he rather have KIA because it’s cheaper.

    Eventually, he explained that his men were taking too many chances.

    Liked by 1 person

  2. This sounds like behavioral economics in the sense that human behavior is not necessarily what looks good on paper or in formulas.

    Risky behavior is often contrary to logic. It is also a very individual condition. Risk tolerance and all that jazz.

    I golf. When faced with a difficult shot over water, for example, risk v. reward is the decision. Logically if I rarely execute a carry of 210 yards, then the reward has to be pretty high or the damage low should I fail.

    But as any amateur has pondered, “screw it, I came to play…”, logic takes a backseat to an attempt at making a great shot. Fun overrides cool calculation.

    Quantifying and thereby predicting human behavior is notoriously difficult except in large populations. Insurance companies know this as well as anyone. Yes, a million policy holders will do this or that predictably and will effectively override the smaller population of outliers who defy the odds. The outliers who practice unprotected sex, or climb rock wall “free solo” or drive without seatbelts or party during a pandemic.

    Liked by 2 people

    1. RE: “Yes, a million policy holders will do this or that predictably and will effectively override the smaller population of outliers who defy the odds.”

      Insurance doesn’t socialize or pool risk in the way you imply. The underlying math is such that the calculated premium for a given policy will be the exactly the same whether the company issues just one or a gazillion policies. That’s all the math requires and, of course, regulation enforces adherence to the underlying math.

      For the very same reason, the Peltzman Effect is actually rational. For example, if one intends to drive a car very fast, it makes more sense to drive a car with superior brakes than one without.

      The difficulty is that trusting the brakes may lead to more dangerous driving. But then, the truth of probability is that actual events are under no obligation to conform with the odds.

      Like

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