are the engineers "over-conservative"? or have human drivers become inured to what should have been considered an unacceptable amount of driving risk?

What's "acceptable risk" is basically a matter of social consensus so anything human drivers (as a group) are ok with is de-facto acceptable.

I think the engineers know the software drives un-humanly but they can't change it because driving like a dick within the letter of the law results in far less legal liability than driving like a human and breaking the law.