Prudence#In economics

File:DSCN2047.JPG The female face depicts Francis' daughter Anne of Brittany.]]

Prudence was considered by the ancient Greeks and later by Christian philosophers, most notably Thomas Aquinas, as the cause, measure, and form of all virtues. It is considered to be the {{lang|la|auriga virtutum}} or the charioteer of the virtues. It is mentioned in the fifth of the Principal Doctrines of Epicurus, and in his Letter to Menoeceus, where he says: "Prudence is the foundation of all these things and is the greatest good. Thus it is more valuable than philosophy and is the source of every other excellence."{{cite book|author=Epicurus|chapter=Epicurus to Menoeceus|editor-last=Laërtius|editor-first=Diogenes|editor-link=Diogenes Laërtius|chapter-url=https://standardebooks.org/ebooks/diogenes-laertius/the-lives-and-opinions-of-eminent-philosophers/c-d-yonge/text/book-10|url=https://standardebooks.org/ebooks/diogenes-laertius/the-lives-and-opinions-of-eminent-philosophers/c-d-yonge|title=The Lives and Opinions of Eminent Philosophers|date=25 November 2024 |publisher=Standard Ebooks }}

Prudence is foundational to virtues, which are understood to be perfected abilities of the human spirit. This perfection is achieved when virtues are founded on prudence, or the ability to make the right decisions. For instance, a person can live temperately when he has acquired the habit of deciding correctly the actions to take in response to his instinctual cravings.

Prudence provides guidance on the appropriate course of action in specific situations. It does not will the good that it discerns. Prudence has a directive capacity with regard to the other virtues. It lights the way and measures the arena for their exercise. Without prudence, bravery becomes foolhardiness, mercy sinks into weakness, free self-expression and kindness into censure, humility into degradation and arrogance, selflessness into corruption, and temperance into fanaticism. The purpose of prudence is to consider the circumstances of time, place, and manner that are relevant in any given situation, known as medium rationis in the Scholastic tradition. So while it qualifies the intellect and not the will, it is nevertheless a moral virtue.{{cite book| url=https://www.newadvent.org/cathen/12517b.htm|last=Delany|first=Joseph|chapter=Prudence|title=The Catholic Encyclopedia|volume=12|location=New York|publisher=Robert Appleton Company|year=1911}}

Prudence provides a model of ethically good actions. "The work of art is true and real by its correspondence with the pattern of its prototype in the mind of the artist. In similar fashion, the free activity of man is good by its correspondence with the pattern of prudence." (Josef Pieper)

According to Greek and Scholastic philosophy, 'form' is the unique characteristic of a thing that makes it what it is. In this sense, prudence gives other virtues their specific character as virtues, by providing a standard against which they can be judged. For example, not all acts of telling the truth are considered virtuous, but those that are done with prudence would be considered expressions of the virtue of honesty.

In Christian understanding, the difference between prudence and cunning lies in the intent with which a decision to act is made. The Christian understanding of the world includes the existence of God, the natural law, and moral implications of human actions. In this context, prudence is different from cunning in that it takes into account the supernatural good. For instance, the decision of persecuted Christians to be martyred rather than deny their faith is considered prudent.

According to Thomas Aquinas, judgments that take a reasonable form, but are aimed at evil ends or that use evil means, are considered to be examples of "cunning" and "false prudence".

The Ancient Greek term for prudence is synonymous with "forethought". People, the Ancient Greeks believed, must have enough prudence to prepare for worshiping the Olympian gods.{{Cite book |last=Homer |title=The Iliad of Homer |date=2011-01-01 |publisher=University of Chicago Press |isbn=978-0-226-47049-8 |location=Chicago London |language=English |translator-last=Lattimore |translator-first=Richmond}}

File:Justice and Prudence window, Lindfield.jpg and Prudence window, Lindfield. Third window, south chapel, All Saints Church, Lindfield, West Sussex. Made in or after 1906 by Christopher Whall.]]

Prudence is the application of universal principles to particular situations.{{cite web| url = https://www.catholiceducation.org/en/education/catholic-contributions/the-virtue-of-prudence.html| last=McManaman|first=Douglas|title=The Virtue of Prudence|website=Catholic Education Resource Center|date=February 2006}} "Integral parts" of virtues, in Scholastic philosophy, are the elements that must be present for any complete or perfect act of the virtue. The following are the integral parts of prudence:

; {{lang|la|memoria}} : accurate memory; that is, memory that is true to reality; an ability to learn from experience

; {{lang|la|docilitas}} : an open-mindedness that recognizes variety and is able to seek and make use of the experience and authority of others

; {{lang|la|intelligentia}} : the understanding of first principles

; {{lang|la|sollertia}} : shrewdness or quick-wittedness, the ability to evaluate a situation quickly

; {{lang|la|ratio}} : discursive reasoning and the ability to research and compare alternatives

; {{lang|la|providentia}} : foresight—the capacity to estimate whether particular actions can realize goals

; circumspection : the ability to take all relevant circumstances into account

; caution : the ability to mitigate risk

{{more citations needed section|small=y|date=March 2016}}

File:Titian - Allegorie der Zeit.jpg by Titian. To Titian, prudence was preparation, foresight and judgement from experience and human history. The three faces in the painting represent the passing of human generations, with the young facing the light while the oldest fade into shadow; the faint inscription above their heads may be translated as "From the past, the present acts prudently, lest it spoil future action".{{cite book|first=David|last=Summers|year=1987|title=The Judgment of Sense: Renaissance Naturalism and the Rise of Aesthetics|publisher=Cambridge University Press|isbn=978-0-521-32675-9}}).]]

In ethics, a "prudential judgment" is one where the circumstances must be weighed to determine the correct action.{{Cite web |first=Trent|last=Horn|title=What is a Prudential Judgment? |url=https://www.catholic.com/qa/what-is-a-prudential-judgment |access-date=2022-10-12 |website=Catholic Answers}} This applies to situations in which two people could weigh the circumstances differently and ethically come to different conclusions.

For instance, in the theory of just war, the government of a nation must weigh whether the harms they suffer are more than the harms that would be produced by their going to war against another nation that is harming them; the decision whether to go to war is therefore a prudential judgment.{{Cite web |title=Just and Unjust Wars Summary {{!}} PDF {{!}} Just War Theory {{!}} Preemptive War |url=https://www.scribd.com/document/295701096/Just-and-Unjust-wars-summary |access-date=2023-10-19 |website=Scribd |language=en}}

As another example, a patient with a terminal illness may hear of an experimental treatment with no conventional alternatives. They would have to weigh, on the one hand, the cost, time commitment, potential lack of benefit, and possible pain, disability, and hastened death, and on the other hand, the potential benefit and the benefits to others that could be gained from what could be learned from their case.

File:Main_ornate_of_the_facade,_Castellania_Malta.jpeg portraying Lady Justice and Lady Prudentia above]]

{{transliteration|grc|Phronesis}}, or practical wisdom, holds an important place in rhetorical theory as a central aspect of judgment and practice. Nicomachean Ethics#Practical judgement (phronesis) fits with his treatise on rhetoric because neither, in his estimation, could be reduced to an {{transliteration|grc|episteme}} or a {{transliteration|grc|techne}}, and both deal with the ability to deliberate about contingent, variable, or indeterminate matters.{{cite book|author=Aristotle|title=Nicomachean Ethics|at=[https://standardebooks.org/ebooks/aristotle/nicomachean-ethics/f-h-peters/text/book-6#chapter-6-1-7 VI.7]}}

Cicero defined {{lang|la|prudentia}} as a rhetorical norm in De Oratore, De officiis, De Inventione, and De re publica. He contrasts the term with {{lang|la|imprudens}}, young men failing to consider the consequences before they act. The {{lang|la|prudens}}, or those who had prudence, knew when to speak and when to stay silent. Cicero maintained that prudence was gained only through experience, and while it was applied in everyday conversation, in public discourse it was subordinated to the broader term for wisdom, {{lang|la|sapientia}}.{{cite book |last=Hariman |first=Robert |title=Prudence: classical virtue, postmodern practice |publisher=The Pennsylvania State University Press |year=2003 |page=37}}

In the modern era, rhetorical scholars have tried to recover a robust meaning for the term. They have maintained consistency with the ancient orators, contending that prudence is an embodied persuasive resource.{{cite book |last=Jasinski |first=James |year=2001 |title=Sourcebook on Rhetoric |publisher=Sage Publications |page=463}} Although sets of principles or rules can be constructed in a particular culture, prudence cannot be derived from a set of timeless principles. Instead, through gauging the situation and through reasoned deliberation, a speaker should determine the set of values and morals by which to base his or her actions. The capacity to take into account the particularities of the situation is vital to prudential practice. For example, as rhetorical scholar Lois Self explains, "both rhetoric and {{transliteration|grc|phronesis}} are normative processes in that they involve rational principles of choice-making; both have general applicability but always require careful analysis of particulars in determining the best response to each specific situation; both ideally take into account the wholeness of human nature; and finally, both have social utility and responsibility in that both treat matter of the public good".{{cite book |first=Lois |last=Self |chapter=Rhetoric and Phronesis: The Aristotelian Ideal |title=Philosophy and Rhetoric |publisher=Penn State University Press |year=1979 |page=14}} Robert Hariman, in his examination of Malcolm X, adds that "aesthetic sensibility, imitation of a performative ideal, and improvisation upon conventions of presentation" are also components of practical reasoning.{{cite book |last=Hariman |first=Robert |title=Theory without Modernity |year=1991 |page=28}}

Rhetorical scholars differ on definitions of the term and methods of analysis. Hans-Georg Gadamer asserted that prudence materializes through the application of principles and can be evaluated accordingly.{{cite journal |last=Gadamer|first=Hans-George |title=Truth and Method |journal=Crossroad |year=1982 |page=7}} Jasinski argues that Andrew Cuomo's speech to the Catholic Church of Notre Dame cannot be judged solely on the basis of its consequences, since prudence is not reducible to episteme (knowledge or understanding) or techne (technique or art). Rather, he contends, it should be judged based on its embodied rhetorical performance — that is, how it is perceived by those who experience it. So, for example, one might evaluate the speech based on how persuasive it was, how emotionally moving it was, or how well it captured the audience's attention. Thus, while Gadamer judges prudence based on a set of principles, Jasinski emphasizes the artistry of communication and its reception by its audience. For Jasinski, communication should balance compromise and courage, rather than merely achieving a specific result.

In his study of Machiavelli, examining the relationship between prudence and moderation, rhetorician Eugene Garver holds that there is a middle ground between "an ethics of principles, in which those principles univocally dictate action" and "an ethics of consequences, in which the successful result is all".{{cite book |last=Garver |first=Eugene |title=Machiavelli and the History of Prudence |publisher=University of Wisconsin Press |year=1987 |isbn=0-299-11080-X}} His premise stems from Aristotle's theory of virtue as an "intermediate", in which moderation and compromise embody prudence. Yet, because elevating moderation is not an active response, prudence entails the "transformation of moderation" into a fitting response, making it a flexible situational norm. Garver also asserts that prudential reasoning differs from "algorithmic" and "heuristic" reasoning because it is rooted in a political community, the context in which common problems regarding stability and innovation arise and call for prudential reasoning.

Economists describe a consumer as "prudent" if he or she saves more when faced with riskier future income. This additional saving is called precautionary saving.

If a risk-averse consumer has a utility function $u(x)$ over consumption $x$, and if $u(x)$ is differentiable, then the consumer is not prudent unless the third derivative of utility is positive, that is, $$

u'''\left(x\right)>0

.{{cite journal |first=A. |last=Sandmo |year=1970 |title=The Effect of Uncertainty on Saving Decisions |journal=Review of Economic Studies |volume=37 |issue=3 |pages=353–360 |doi=10.2307/2296725 |jstor=2296725 }}

The strength of the precautionary saving motive can be measured by absolute prudence, which is defined as

-\frac{u'\left(x\right)}{u\left(x\right)}

. Similarly, relative prudence is defined as absolute prudence, multiplied by the level of consumption. These measures are closely related to the concepts of absolute and relative risk aversion developed by Kenneth Arrow and John W. Pratt.{{cite journal |first=Miles S. |last=Kimball |year=1990 |title=Precautionary Saving in the Small and in the Large |journal=Econometrica |volume=58 |issue=1 |pages=53–73 |doi=10.2307/2938334 |jstor=2938334 |s2cid=153558057 |url=http://www.nber.org/papers/w2848.pdf }}

In accounting, prudence was historically regarded as a fundamental principle for determining the appropriate timing of revenue recognition.{{cite web|url=https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim31030|title=Tax and accountancy: concepts and pervasive principles|website=HMRC Business Income Manual}} The rule of prudence means that gains should not be anticipated unless their realisation was highly probable. However, recent developments in Generally Accepted Accounting Principles have led academic critics to accuse the International Standard-Setting Body, IASB, of abandoning prudence.{{cite journal|first=Mario|last=Christodoulou|url=https://www.accountancyage.com/2010/08/24/iasb-has-abandoned-prudence-professor-warns/|title=IASB has abandoned prudence, professor warns|journal=Accountancy Age|date=24 August 2010}} In the British reporting standard FRS 18, prudence, along with consistency, was relegated to a "desirable" quality of financial information rather than fundamental concept.{{cite web|url=http://www.hmrc.gov.uk/manuals/bimmanual/bim31032.htm|url-status=dead|archive-url=https://web.archive.org/web/20101022160758/http://www.hmrc.gov.uk/manuals/bimmanual/BIM31032.htm|archive-date=22 October 2010|title=Tax and accountancy: development of accountancy concepts and new objectives: FRS18|website=HMRC|access-date=2011-04-12}} Prudence was rejected for IFRS because it was seen as compromising accounts' neutrality.{{cite journal|first=Rose|last=Orlik|url=https://www.accountancyage.com/2011/04/04/lords-took-a-leap-on-international-standards/|title=Lords took a leap on international standards|journal=Accountancy Age|date=4 April 2011|access-date=2011-04-12}}

In a 2011 report on the 2008 financial crisis, the British House of Lords bemoaned the demotion of prudence as a governing principle of accounting and audit. However, their comments were disputed by prominent practitioners.

• {{annotated link|Phronesis}}
• {{annotated link|Prudence (given name)}}

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{{Commons category|Prudence}}

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{{Wiktionary}}

• [http://www.newadvent.org/summa/3.htm Summa Theologica "Second Part of the Second Part"] (Questions 47–56).
• [http://www.newadvent.org/cathen/12517b.htm "Prudence"] at the Catholic Encyclopedia.

{{Christian virtue ethics}}

{{Philosophical logic}}

{{Virtues}}

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Category:Virtue

Category:Christian ethics