What Is The Peltzman Effect In Behavioral Economics?

The Peltzman effect, also known as the “offset hypothesis,” is an economic theory that suggests that increases in safety regulations or technology can lead to an increase in risky behavior. The theory is named after economist Sam Peltzman, who proposed it in a 1975 paper on the effects of automobile safety regulations on driving behavior.

According to the Peltzman effect, individuals may perceive that they are safer when they are using safety equipment or following safety regulations, and as a result, they may be more likely to engage in risky behavior. This can lead to a “compensation effect,” in which the overall level of risk remains the same or even increases, despite the implementation of safety measures.

The Peltzman effect has been studied in a variety of contexts, including transportation safety, financial markets, and health care. It is an important concept in the field of behavioral economics, as it highlights the potential unintended consequences of safety regulations and technology.

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