prudence
Prudence refers to the exercise of sound judgment, careful management, and reasonable conduct under the circumstances, evaluated according to what was known or reasonably should have been known at the time a decision or action occurred. Prudence embodies the duty of care owed to others and requires that individuals act with foresight and caution to avoid foreseeable harm. The degree of prudence expected may increase in situations involving heightened risk, such as threats to public safety or significant economic exposure to others, including ratepayers or beneficiaries. In negligence analysis, a defendant’s conduct is compared to that of a reasonable person in similar circumstances to determine whether prudence was exercised.
The prudent person rule is a legal standard used to assess whether a fiduciary, such as a trustee, has exercised proper care and judgment. It holds that a fiduciary must manage another’s business or investments with the same level of care, skill, and diligence that an ordinarily prudent and intelligent person would apply in managing their own affairs. This rule governs fiduciary behavior in contexts such as trust management, pension administration, and investment decision-making.
[Last reviewed in October of 2025 by the Wex Definitions Team]
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