I'd like to see the data that the NHTSA used to conclude that the risk of a malfunction is higher than the risk of human error. Millions of crashes each year result in tens of thousands of deaths [1]. Humans drive while tired, drunk, or simply distracted, and of course, tend to have slower reflexes than computers. Even if the technology isn't ready for mainstream adoption today, I bet we'll look back in horror at the…
An all-human example: driving too fast in foggy/whiteout conditions and not having time to stop when the road is blocked. When this happens today, you get 100 car pileups because everyone is doing the same thing: driving along until they suddenly come upon the pileup, and smashing into it because they don't have time to stop.
What if a software error causes this same kind of behavior in more common conditions? Google's testing wouldn't expose this kind of failure mode, because (afaik) they haven't done extensive tests driving fleets of automated cars together. All of their cars have been surrounded by human drivers, and for all we know the varied reactions of the human drivers have prevented them from hitting the Google car when it does something odd.