This phenomenon—which came to be known as the Peltzman effect—is often used as a lens for studying risk compensation, the theory that we make different choices depending on how secure we feel in any given situation (i.e., we take more risk when we feel more protected and less when we perceive that we are vulnerable). This is why, in the wake of the 9/11 attacks and the rise in fear of terrorists gaining access to nuclear weapons, Stanford political scientist Scott Sagan argued that increasing security forces to guard nuclear facilities might actually make them less secure. The Peltzman effect also reaches into insurance markets, whereby people who have coverage engage in riskier behavior than those without coverage, a phenomenon known as moral hazard. Clearly, this pattern of human behavior has potentially huge implications when taken to scale.
The most obvious takeaway here is that seemingly free-will choices we make every day may in fact be shaped by hidden effects we are not aware of. (Also, you should wear a seat belt and drive safely!) But in the context of scaling, this illuminates another cause of voltage drops that we must avoid: the spillover effect. This is the unintended impact one event or outcome can have on another event or outcome, a classic example being when a city opens a new factory and the air pollution it produces impacts the health of residents in the surrounding area. That this effect occurs speaks to the inescapable web linking events, the things humans create, and the natural world. The term “spillover effect” has been applied in fields as far-ranging as psychology, sociology, marine biology, ornithology, and nanotechnology, but we will define it in a human sense, as the unintended impact of one group of people’s actions on another group. And nothing makes spillovers more likely and visible than scaling an endeavor to a wide swath of people. Remember the Murphy’s law of scaling: anything that can go wrong will go wrong at scale. Or to put it slightly less memorably, something unexpected has a much higher probability of occurring at scale than not at scale.
John A. List is the Kenneth C. Griffin Distinguished Service Professor in Economics and the College at the University of Chicago. Excerpted from THE VOLTAGE EFFECT: How to Make Good Ideas Great and Great Ideas Scale. Reprinted by arrangement with Currency, an imprint of Crown Publishing Group. © John A. List