Ethics in Finance

Consequentialism

An ethical theory that judges whether an action is right or wrong based on its outcomes (consequences). The best action is the one that creates the greatest overall good.

Deontology

An ethical theory stating that actions are right or wrong depending on whether they follow moral duties and rules, regardless of the outcome.

Virtue Ethics

Focuses on developing good character rather than simply following rules or producing good outcomes.

Anchoring Bias

We rely too heavily on the first piece of information we receive.

Availability Heuristic

We judge how likely something is based on how easily we remember examples, rather than actual statistics.

Bandwagon Effect

We follow what everyone else is doing instead of thinking independently. (popularity)

Choice-Supportive Bias

After making a decision, we convince ourselves it was the correct one and ignore its flaws.

Confirmation Bias

We seek information that supports what we already believe and ignore evidence that contradicts it.

Ostrich Bias

We avoid or ignore negative information because it is uncomfortable.

Outcome Bias

We judge whether a decision was good based only on the final result rather than the quality of the decision-making process.

Overconfidence Bias

We become overly confident after previous success and stop relying on evidence.

The Socratic Method

Instead of immediately agreeing with people, Socrates would ask lots of questions.

Bounded ethicality

The systemic and predictable ways in which people make decisions without realizing the implications of their behaviour.

confirmation bias

Seeking information that confirms existing beliefs.

Cognitive Dissonance

Rejecting or ignoring information that conflicts with beliefs.

Loss Aversion

Losses feel stronger than gains; people avoid losses more.

Framing Effect

Decisions change depending on how information is presented.

Commitment Bias / Sunk Costs

Continuing a decision because time or resources were already invested.

Overconfidence

Overestimating knowledge, ability, or success.

Self-Interest Bias

Making judgments that favour oneself.

Risk Perception Bias

Misjudging risks; overestimating some and ignoring others.

Bounded Rationality

Choosing a "good enough" solution rather than the best one.

Conformity Bias

Following others instead of independent thinking (pressure to fit in)

Groupthink

Group pressure leading to poor or extreme decisions. (bad group decision-making)

Incentive Gaming

Manipulating systems to gain rewards without improving performance.

Incrementalism

Gradual lowering of ethical standards over time.

Ethical Fading

Ethical issues become overlooked when focusing on other goals.

Moral Myopia

Difficulty seeing ethical issues clearly.

Moral Muteness

Not speaking up about ethical concerns.

Obedience to Authority

Following authority even when personal judgement is needed.

Role Morality

Using different moral standards in different roles or situations.