What is Risk Compensation?
Risk Compensation, also known as the Peltzman Effect as it was studied in detail by Economics Professor Sam Peltzman, describes the way that humans adjust their behaviour depending on the level of risk they feel is involved. Meaning that they will behave more carefully and sensibly when the perceived level of risk is greater and will be less careful when they feel protected.
Therefore we are in fact more likely to take greater risks when we feel that we’re protected by certain factors – say, make more extravagant purchases online when we feel as though it is a safe and secure environment in which to shop.
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