> was already driving under the legal speed

That's exactly part of the problem. If it is programmed to be over-cautious and go 17 in a 25 zone, that feels like it is safe. Is it?

It takes human judgment of the entire big picture to say meaningfully whether that is too slow or too fast. Taking the speed limit literally is too rigid, something a computer would do.

Need to take into account the flow of the kids (all walking in line vs. milling around going in all directions), their age (younger ones are a lot more likely to randomly run off in an unsafe direction), what are they doing (e.g. just walking, vs. maybe holding a ball that might bounce and make them run off after it), their clustering and so on.

Driving past a high school with groups of kids chatting on the sidewalk, sure 20mph is safe enough. Driving past an elementary school with a mass of kids with toys moving in different directions on the same sidewalk, 17mph is too fast.

And if I'm watching some smaller kids disappear behind a visual obstruction that makes me nervous they might pop up ahead of it on the street, I slow down to a crawl until I can clearly see that won't happen.

None of this context is encoded in the "25mph when children are present" sign, but for most humans it is quite normal context to consider.

But would be great to see video of the Waymo scene to see if any of these factors was present.