What Is Risk Compensation?

G. Wiesen
G. Wiesen
Businessman giving a thumbs-up
Businessman giving a thumbs-up

Risk compensation typically refers to an observed human behavior in which a person responds to a perceived reduction in risk by acting in a way that is less safe. This is often discussed in terms of safety features on motor vehicles, and many car companies consider how this behavior can impact the actual safety of a vehicle. The general way in which this type of compensation works is that a person essentially has an unconscious amount of risk he or she tolerates, as perceived risk decreases then personal risks can increase accordingly. Risk compensation can also be used to loosely refer to compensation given to employees or managers without consideration of risks taken.

The theory of risk compensation is often used in a number of different fields and largely relates to observed human behaviors. Much of the theory arose from research into the use of automotive and bicycling safety equipment, with the revelation that even though such vehicles had become safer, the number of accidents and injuries had generally remained the same. This is attributed to the idea of risk compensation. The basic theory states that people are willing to accept a certain amount of risk on a subconscious level; as perceived risks decrease, through the development of increased safety equipment for example, then their actions actually become more risky.

Risk compensation is often used in the automotive industry, though it can be applied to other businesses as well. Though many vehicles are designed to be far safer than ever before, research seems to indicate this just leads to drivers taking more risks and driving more recklessly. This has led to a great deal of debate over the effectiveness of safety equipment and standards for vehicles, since little practical evidence supports that these features actually save lives or reduce injuries. Risk compensation can also be observed regarding bicyclists, as drivers have been noted to take more chances around and drive closer to cyclists who wear helmets.

The term “risk compensation” can also be used in a business setting in a looser manner. This usage often refers to financial compensation granted to employees or managers regardless of risks taken and any failures that may be observed. While this type of risk compensation does not impact all businesses, it is often seen with managers or company officers who take risks that lose money for employees or investors, but who still receive standard compensation. This type of behavior is often frowned upon by consumers and the public in general, though it can be seen as a way to promote innovative risk-taking that may benefit a company.

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