Course Overview

ARBUS 202 / PHIL 215 — Professional and Business Ethics is an introductory course offered at the University of Waterloo, developed by Dr. Gregory Andres. The course runs across twelve modules and is designed to bridge ethical theory with practical application in professional and business contexts. It is simultaneously a philosophy course and a practical guide for navigating the ethical terrain of organizational life.

The overarching premise of the course rejects a pervasive false dichotomy: the idea that making money and being ethical are mutually exclusive pursuits. Students are shown that it is entirely possible to be profitable, competitive, and successful in business without violating ethical principles, engaging in deception, or exploiting the environment. Ethics is not an obstacle to business success; it is, in many respects, a precondition for sustainable success.

Ethics, broadly speaking, is the branch of philosophy concerned with analyzing the principles that govern the moral evaluation of human conduct. Because human beings are, in part, economic animals who trade with one another in the pursuit of mutual benefit, and because our actions inevitably affect the well-being of others, business and professional activity falls squarely within the domain of ethical analysis.

The course assumes moral pluralism — the view that there is a plurality of moral principles, each capturing something important about what matters morally. These principles may sometimes be consistent with one another and sometimes in tension, but all deserve serious consideration. This assumption licenses a pluralistic methodology: the course draws on multiple ethical frameworks rather than dogmatically committing to a single theory.

Key topics across the twelve modules include:

• Fundamentals of moral theory (utilitarianism, deontology, virtue ethics, ethics of care)
• Ethical decision-making frameworks
• Corporate social responsibility (CSR) and the social role of profit
• Equality, fairness, and discrimination
• Social action problems and game theory
• Markets and the environment
• Advertising ethics
• Governance and the principal-agent problem
• Strategic negotiation
• Codes of ethics and whistleblowing

By the end of the course, students should be able to understand and apply multiple moral theories, identify ethical problems in complex professional contexts, evaluate alternative courses of action, and defend a plausible ethical position.

Module 1: Introduction and Basic Concepts

The Nature of Applied Ethics

This course is an applied ethics course. Applied ethics, sometimes called practical ethics, seeks to bridge ethical theory and practice. Unlike pure moral philosophy, which can remain highly abstract, applied ethics asks: given what we know about various moral frameworks, how should we act in real professional situations?

To succeed in this kind of course requires two complementary activities: engaging with theoretical frameworks, and actively applying those frameworks to concrete cases. Memorizing definitions is insufficient. The goal is integration — to bring ethical thinking into one’s daily way of life and into the very habits of reasoning through problems.

Foundational Distinctions

Before any ethical analysis can be done rigorously, a handful of foundational distinctions must be firmly in place. These distinctions are the building blocks of everything that follows.

The Prudential/Ethical Distinction

The first foundational distinction is between the prudential and the ethical.

To act prudentially is to act with good judgment and forethought for one’s future. Prudential actions are those undertaken in one’s own self-interest — they are forward-looking calculations about what is best for oneself. For example, applying sunscreen before a long day outside is a prudential action. There is no moral principle requiring one to wear sunscreen; the motivation is entirely self-regarding.

To act ethically, by contrast, is to act in accordance with principles or standards for right conduct — principles that take into account not just oneself but also the interests and well-being of others. When ethics applies, it is not merely because an action is wise or self-serving, but because it bears on the treatment of others.

This distinction matters enormously in business contexts, because many business decisions that appear to be purely prudential — purely about maximizing profit or protecting one’s competitive position — actually have ethical dimensions when they affect the well-being of other people, communities, or ecosystems.

The Fact/Value Distinction

The second foundational distinction is between fact and value.

A fact is a description of what is the case. Facts are, in principle, verifiable through scientific inquiry, direct observation, or conceptual analysis. “The Canadian minimum wage in Ontario is a specific dollar amount” is a factual claim. “This river is 400 kilometres long” is a factual claim. Facts are things that, in principle, all parties can agree to.

A value judgment, by contrast, is an assessment of the importance, worth, or usefulness of something. “This river is beautiful” is a value judgment. “That business practice is exploitative” is a value judgment. Value judgments involve standards that go beyond mere description.

In ethical analysis, confusion between facts and values can lead to serious reasoning errors. Identifying the morally relevant facts of a case must precede making value judgments about it. One cannot resolve ethical disagreements simply by accumulating more facts; at some point, one must grapple with competing values.

The Descriptive/Normative Distinction

Closely related to the fact/value distinction is the distinction between the descriptive and the normative.

A descriptive claim says what is the case. “Humans eat the meat of non-human animals” is descriptive. “Some corporations engage in deceptive advertising” is descriptive. These claims report facts about the world.

A normative claim says what ought to be the case. “We should reduce meat consumption” is normative. “Corporations ought not to deceive consumers” is normative.

One of the most important principles in philosophy — associated with David Hume — is that one cannot validly derive an “ought” from an “is.” That is, the mere fact that something is the case does not, by itself, establish that it ought to be the case. This is sometimes called Hume’s guillotine or the is-ought gap. Recognizing this gap is essential: appeals to the way business is currently conducted cannot, on their own, justify those practices.

Private and Public Morality

Another concept introduced early in the course is the distinction between private morality and public morality.

Private morality refers to the moral principles one adheres to in one’s personal life — how one treats one’s server, how one behaves on public transit, whether one gives to charity. These are matters of personal conviction and individual character.

Public morality, by contrast, consists of the moral requirements and moral considerations that arise when one acts on behalf of another person or organization. A professor must act as prescribed by university policies. A lawyer must act in the best interests of their client. A doctor must act in the best interests of their patient. These professionals are not acting purely on their own behalf — they are accountable to others and to formal ethical codes.

There will be times in professional life when one must set aside personal convictions and act in the best interest of the organization one represents. But there will also be times when private morality legitimately influences workplace decisions. Learning to navigate the relationship between these two spheres is one of the course’s practical aims.

Module 2: Moral Theories

Why Moral Theory Matters

Before ethical analysis can be applied to business problems, some theoretical groundwork is necessary. Moral theories attempt to give a systematic account of what makes actions right or wrong. Different theories have different focuses and will sometimes prescribe different actions in the same situation. This plurality is not a defect of moral reasoning; it is a feature of the genuine complexity of ethical life.

The goal is not to pick one theory and declare it correct while dismissing the others. Rather, different theories illuminate different aspects of ethical situations, and a sophisticated moral reasoner draws on multiple frameworks.

Utilitarianism

Utilitarianism is one of the dominant traditions in Western moral philosophy. Its most famous proponents are Jeremy Bentham and John Stuart Mill.

The core principle of utilitarianism is the Greatest Happiness Principle: actions are right in proportion as they tend to promote happiness; actions are wrong as they tend to produce the reverse of happiness. As Mill states it: “The creed which accepts as the foundation of morals, Utility, or the Greatest-Happiness Principle, holds that actions are right in proportion as they tend to promote happiness, wrong as they tend to produce the reverse of happiness.”

Several points of clarification are essential:

1. Utilitarianism is not the doctrine of an egoist. Mill is not concerned solely with the happiness of the individual agent, but with the happiness of society as a whole — what is sometimes called social utility.

2. Utilitarianism does not simply demand that we choose the action that benefits the greatest number of people. It demands that we maximize the net balance of happiness. A minority may be benefited more by an action than a larger majority, and that action would still be the right one if it produces a greater net balance.

3. The trolley problem is a classic thought experiment used to probe utilitarian intuitions. If five people are tied to a trolley track, and one person is tied to a side track, and one can pull a lever to divert the trolley — killing one but saving five — what should one do? A naive utilitarian might say “pull the lever.” But once net utility is properly calculated, the correct answer is less obvious.

The moral focus of utilitarianism is on the consequences of actions. An action is right or wrong based entirely on the outcomes it produces. This makes utilitarianism a form of consequentialism.

In business contexts, utilitarian thinking underlies much welfare economics and cost-benefit analysis. When a corporation evaluates the social impact of a project, or when a government weighs the costs and benefits of a regulatory policy, utilitarian logic is typically at work.

Deontology

Deontology is the view that the rightness or wrongness of an action is not determined by its consequences but by whether the action conforms to a rule or duty. The most influential deontological thinker is Immanuel Kant.

For Kant, morality is grounded in reason, not in consequences or emotions. The fundamental principle of morality is the Categorical Imperative, which can be stated in several ways. One formulation: act only according to that maxim by which you can at the same time will that it should become a universal law. Another formulation: act so that you treat humanity, whether in your own person or in that of another, always as an end and never as a means only.

The moral focus of deontology is on the nature of the action itself and its conformity to duty. Some actions — lying, breaking promises, using people merely as tools — are intrinsically wrong, regardless of the good consequences they might produce.

In business contexts, deontological thinking surfaces in debates about truthfulness in advertising, respect for employee rights, and the duty to honour contracts. A deontologist would argue that it is wrong to deceive customers even if deception would produce better outcomes for the firm.

Virtue Ethics

Virtue ethics is a tradition going back to Aristotle. Its moral focus is not on actions or consequences but on the character of the person performing the action. What matters is whether a person is acting from virtuous character — whether they are the right kind of person.

A virtue is a disposition to act in a particular way. It is not a habit, though habits can contribute to developing virtuous dispositions. Virtues are stable character traits that can be developed through the deliberate exercise of practical reason (what Aristotle called phronesis or practical wisdom). Examples of virtues include honesty, courage, temperance, justice, and integrity.

Consider the thought experiment of the police officer who obeys the law but only reluctantly — who, if they could get away with it, would extort, brutalize, and fabricate evidence. According to virtue ethics, this police officer is not a good person, even though their outward behaviour is law-abiding. They are doing the right thing but for the wrong reasons. Moral praise belongs to the person who acts well because they have good character, not because they fear consequences.

In business, virtue ethics calls attention to questions about organizational culture and the kind of people a company cultivates. Are employees encouraged to develop integrity, fairness, and courage? A business with a strong ethical culture fosters virtuous agents — people who make good decisions because of who they are, not merely because they fear punishment.

Ethics of Care

The ethics of care is a more recent moral framework, developed significantly by Carol Gilligan and Nel Noddings, and articulated in a business context through thinkers like Virginia Held.

Dominant moral theories — utilitarianism, deontology, virtue ethics — typically abstract away from the particular and try to establish universal rules that are to be followed impartially. They assume that moral agents are rational, autonomous, and equal. The ethics of care challenges these assumptions.

The ethics of care starts with the moral claims of those for whom we take responsibility. It recognizes that human beings are not, in fact, isolated rational agents — they are embedded in webs of relationships characterized by dependency, care, and responsibility. Our moral obligations do not arise from abstract principles but from these relationships.

As Virginia Held writes: “Moralities built on the image of the independent, autonomous, rational individual largely overlook the reality of human dependence and the morality it calls for. The ethics of care attends to this central concern of human life and delineates the moral values involved.”

Consider the thought experiment of a trained swimmer at a beach who must choose between saving their drowning cousin and a drowning stranger when they can only reach one. Ethics of care would say that special obligations arise from relationships of care and dependency — one has a duty to one’s cousin that one does not have to a stranger, and this partiality is morally defensible.

In professional life, ethics of care draws attention to the texture of workplace relationships — the duties we owe to co-workers, to subordinates, and to stakeholders who depend on us.

Moral Pluralism vs. Moral Relativism

The course adopts moral pluralism — the view that multiple moral principles are genuine and important, and that no single theory captures the whole truth. This must be carefully distinguished from moral relativism, which holds that moral claims are true only relative to individuals or cultures, and that there are no mind-independent moral truths.

Moral pluralism does not collapse into relativism. It holds that multiple theories each capture genuine moral considerations, and that a sophisticated ethical reasoner must weigh these considerations carefully. It does not follow that all positions are equally defensible, or that ethics is merely a matter of opinion. Careful, rigorous ethical reasoning can resolve many disputes, even if it cannot resolve all of them.

Module 3: Ethical Decision-Making

The Challenge of Moral Disagreement

Each person brings to the workplace a distinct conception of the good life and of what makes actions right or wrong. In a pluralistic society, moral disagreement is not only possible but likely. The course does not pretend that ethical reasoning always converges on a single answer. But it insists that moral defeat — throwing up one’s hands and declaring ethical issues unresolvable — is never a defensible strategy.

The first step in resolving moral disagreements is to understand their source. This requires the conceptual tools provided by the study of moral theories, and it requires rigorously distinguishing the facts of a situation from the values and principles at stake.

The Fact/Value Distinction in Practice

As introduced in Module 1, a fact is a description of what is the case — something in principle verifiable and that all parties can agree to. A value judgment is an assessment of worth, importance, or what ought to be.

In ethical decision-making, one of the most common errors is to smuggle value judgments in under the guise of factual description. A disciplined ethical reasoner separates the two carefully.

Consider the case of Bob, who takes surplus electronic hardware from his workplace without authorization, reasoning that the equipment would otherwise be thrown away and that waste is bad. When analyzing this case:

• Factual claims: Bob is an employee. The hardware is surplus. Company policy forbids taking equipment home.
• Value claims: “Waste is bad” is a value claim. “Bob always does the right thing” is a value claim (and a contested one given the situation).

Isolating the facts prevents one from inadvertently building value assumptions into the description of the case.

The Values/Principles Distinction

A second important distinction in ethical decision-making is between values and principles.

In this context, a value is a judgment about what is important in life. Values are ideals — they represent what a person or organization holds dear. Examples of personal values include honesty, compassion, reliability, and service to others. Examples of corporate values include sustainability, profitability, innovation, and community involvement.

A principle encapsulates a value as a guide to behaviour. Values inform principles; principles guide behaviour.

Crucially, a single value does not uniquely entail a single principle. Multiple different principles can be derived from the same underlying value. Consider the value of honesty:

• Principle 1: Say only truthful things.
• Principle 2: Do not lie by omission.
• Principle 3: Say everything that is true.

All three principles are consistent with the underlying value of honesty, but they prescribe very different behaviours. Principle 3, taken literally, would be utterly impractical — it would require one to utter every true thing one knows about any topic at all times. The task of moral reasoning includes not just identifying the right values but articulating workable principles that give those values practical content.

The Six-Step Decision-Making Model

To bring rigour to ethical reasoning in professional contexts, the course introduces a six-step decision-making model. This model does not replace ethical judgment, but it structures the reasoning process so that important considerations are not overlooked.

Step 1: Determine the Facts

State the morally relevant facts. Who is involved? What happened? When? Where? How?

This step requires discipline: one is listing only facts, not making value judgments yet. The fact/value distinction is crucial here. At this stage, one simply describes what is the case to the extent that all parties can, in principle, agree to the description.

Step 2: Define the Ethical Issue

Once the facts are established, the ethical issue can be defined. What is the moral problem here? What values or obligations are at stake? What makes this an ethical — and not merely a prudential — question?

Step 3: Identify Values and Principles

What values and principles do the parties bring to the situation? These may differ. A manager may value loyalty and organizational efficiency; an employee may value honesty and transparency. Identifying these values and principles makes it possible to understand the source of a disagreement rather than simply experiencing it as an irreconcilable clash.

Step 4: Specify the Alternatives

What are the available courses of action? This step requires genuine creativity — often there are more options than initially apparent. The best decision is unlikely to emerge if the range of alternatives has been artificially narrowed.

Step 5: Compare the Alternatives

Evaluate each alternative against the values and principles identified in Step 3. Which alternatives best honour the most important values? Do any alternatives violate ethical minimums? What are the likely consequences of each?

Step 6: Make Your Decision

Having worked through the preceding steps rigorously, select the best available course of action and be prepared to defend it. A defensible ethical decision is one that a reasonable person — familiar with the facts, values, and alternatives — would accept as reasonable.

Dirty Hands

One of the more uncomfortable concepts introduced in this module is the problem of dirty hands. This refers to situations where any available course of action involves some moral cost — where one cannot avoid getting one’s hands dirty. In real organizational life, perfect solutions are rare. The decision-making model does not promise clean hands; it promises that one has reasoned as carefully as possible through a genuinely difficult situation.

Module 4: Corporate Social Responsibility

The Moral Status of Profit-Seeking

Module 4 confronts one of the most contested questions in business ethics: what is the moral status of profit-seeking? The debate has two poles.

On one side stand those who argue that the business of business is to maximize profit — full stop. This view is associated most famously with Milton Friedman, who wrote: “…there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits…”

On the other side are those who view unconstrained profit-seeking as a form of corporate greed and a root cause of social and environmental harm.

The course argues that both positions, taken to their extremes, are mistaken — and that recognizing the social function of profit-seeking opens the way to a more nuanced and defensible account.

The First Fundamental Theorem of Welfare Economics

To understand the social role of profit-seeking, the course introduces the First Fundamental Theorem of Welfare Economics: a perfectly competitive market will distribute resources efficiently.

What this means: if people are allowed to compete freely for resources and to trade as long as it is mutually beneficial to do so, resources will be allocated without waste. This is sometimes called the Invisible Hand, following Adam Smith’s metaphor in The Wealth of Nations: individuals pursuing their own self-interest are led, as if by an invisible hand, to promote outcomes beneficial to society as a whole.

A corollary of this theorem is the race to the bottom. When businesses compete on price, they are incentivized to cut costs and lower prices. Competition drives prices down toward the cost of production. This is good for consumers: they pay less and get more.

However, competition can also incentivize businesses to cut corners in ways that harm stakeholders. This is why ethical constraints on competition are necessary — not to eliminate competition, but to ensure it is conducted ethically.

Albert Carr and the Poker Analogy

Albert Carr, writing in the Harvard Business Review in 1968, argued that morality has nothing to do with business. His argument proceeded by analogy with poker. Like poker, business involves chance, skill, psychological insight, self-discipline, and swift response to opportunity. And in poker, bluffing — deception — is entirely legitimate. Therefore, Carr concluded, deception is a legitimate business strategy, as long as one stays within the rules of the game (i.e., the law).

Carr’s position represents the extreme view that ethics is simply irrelevant to business decision-making: the only constraints are legal ones.

The course identifies the fallacy in Carr’s reasoning. The fact that deception is accepted in one context (poker) does not entail that it is acceptable in a very different context (business). The contexts are not analogous in the relevant ways. Poker is an explicitly adversarial game entered into voluntarily, where all parties understand that bluffing is part of the game. Business relationships — with customers, employees, suppliers, communities — are not structured this way. Consumers do not enter the marketplace expecting to be systematically deceived.

Machiavelli and the Descriptive/Normative Conflation

Another tradition invoked to justify unconstrained profit-maximization appeals to Machiavelli. The Prince contains the passage: “…there is such a gap between how one lives and how one ought to live that anyone who abandons what is done for what ought to be done learns his ruin rather than his preservation.”

Dominant interpretations read this as advice to abandon ethical considerations altogether in the pursuit of power or profit. But this reading conflates the descriptive and the normative. The fact that ruthless behaviour characterizes how many people conduct business (a descriptive claim) does not imply that ruthlessness is the right way to conduct business (a normative claim). The is-ought gap applies here with full force.

Heath’s Ten Commandments of Business Ethics

Joseph Heath provides a framework for thinking about the ethical constraints on business through what the course calls the Ten Commandments of Business Ethics (from his work Morality, Competition, and the Firm):

1. Minimize negative externalities
2. Compete only through price and quality
3. Reduce information asymmetries between firm and customers
4. Do not exploit diffusion of ownership
5. Avoid erecting barriers to entry
6. Do not use cross-subsidization to eliminate competitors
7. Do not oppose regulation aimed at correcting market imperfections
8. Do not seek tariffs or other protectionist measures
9. Treat price levels as exogenously determined
10. Do not engage in opportunistic behaviour toward customers or other firms

These commandments articulate the ethical conditions under which market competition is socially beneficial. They represent prudential and ethical constraints on profit-maximization — not because they make business unprofitable, but because violating them undermines the social function of markets.

The Triple Bottom Line and Stakeholder Theory

Corporate Social Responsibility (CSR) is the concept that businesses have obligations not only to their shareholders but to a broader set of stakeholders. This is operationalized through the triple bottom line — the idea that business success should be measured across three dimensions: people (social impact), planet (environmental impact), and profit (financial performance).

The stakeholder theory, associated with R. Edward Freeman, holds that a firm has obligations to anyone with an interest or concern in what it does. A stakeholder is defined broadly as any party affected by the firm’s activities.

An important distinction must be made between proximal and distal stakeholders. Some stakeholders are directly and substantially affected by a firm’s decisions; others are only marginally or indirectly affected. Similarly, not all stakeholder claims are equally legitimate. One must distinguish between genuine interests and unscrupulous interests. A city resident harmed by the noise and fumes of food trucks has a genuine claim; a competing restaurant claiming food trucks violate their interests in the absence of competition has an unscrupulous claim — they are simply trying to use regulatory mechanisms to block legitimate competitors from entering the market.

Module 5: Equality and Discrimination

The Second Fundamental Theorem of Welfare Economics

Module 5 introduces the Second Fundamental Theorem of Welfare Economics: we can have an efficient market by allowing competition, provided that there is an appropriate initial distribution of resources.

Where the First Theorem is about efficiency — ensuring that resources are not wasted — the Second Theorem is about distribution — ensuring that resources are allocated fairly from the outset. This raises a profound question: does market efficiency preclude equality?

The answer is no — but achieving both efficiency and equality requires deliberate choices about the initial distribution of resources. Markets, left to themselves, are efficient but not necessarily fair. A very unequal starting distribution of resources will, if markets are competitive, produce a very unequal — but efficient — final distribution.

Two Conceptions of Equality

The course distinguishes between two conceptions of equality that are often conflated:

The first conception of equality holds that all people should be treated exactly the same. This sounds intuitively fair but is, in practice, deeply problematic. Treating everyone identically regardless of their circumstances does not produce equal outcomes — it simply entrenches existing advantages and disadvantages.

The second conception of equality holds that all people deserve equal moral consideration — that each person is worthy of the equal respect and concern owed to a morally autonomous agent. On this view, equality of opportunity means ensuring that each person has a fair chance to develop their capacities, not that all people start from identical positions.

To illustrate the difference, the course uses the analogy of a race between a hare and a tortoise. Under the first conception, a “Grand Equalizer” imposes identical conditions on both — effectively handicapping the hare to bring them down to the level of the tortoise. This is not fair; it actively harms participants with natural advantages and benefits no one. Under the second conception, relative positioning ensures that each participant has a genuine chance to use their talents fully, without imposing artificial sameness.

Discrimination

The word discrimination carries at least three distinct meanings, and conflating them generates confusion:

Benign discrimination is simply the ability to distinguish between things. Preferring vinyl records to streaming, or one cola to another, is benign discrimination. It involves no moral wrongdoing and is not an impediment to fairness.

Invidious discrimination is the unjust or prejudicial treatment of people on the basis of characteristics like race, gender, religion, or sexual orientation. A racist who refuses to patronize businesses owned by members of other races is engaging in invidious discrimination. It is morally wrong — it violates norms of civil decency and equal respect — but it may not be legally prohibited in all its forms.

Unlawful discrimination is discrimination that violates the law. In Ontario, this is governed by the Human Rights Code, which prohibits discrimination in employment, housing, and services on the grounds of race, ancestry, place of origin, colour, ethnic origin, citizenship, creed, sex, sexual orientation, gender identity, gender expression, age, record of offences, marital status, family status, and disability.

Unlawful discrimination is always an impediment to fairness. Invidious discrimination is morally wrong and frequently an impediment to fairness even where it is not illegal. Understanding the distinction matters because different responses are appropriate: some discrimination calls for legal remedies; some calls for cultural and moral challenge.

Attribution Error and Structural vs. Individual Explanations

One important concept in this module is the attribution error — the tendency to attribute the outcomes of social processes to the individual characteristics of those involved, while overlooking structural factors.

When members of marginalized groups are underrepresented in positions of power, the attribution error tempts us to explain this through individual deficiencies rather than through the structural barriers — such as the glass ceiling (invisible barriers preventing women and minorities from advancing) and the glass wall (barriers that prevent lateral mobility into influential roles) — that impede equal opportunity.

A fair assessment of inequality in organizations requires recognizing both individual and structural factors, and resisting the temptation to reduce complex social outcomes to individual merit or failure.

Module 6: Social Action Problems

The Free Rider Problem and Social Action Problems Defined

Module 6 introduces the concept of a social action problem: a situation where everyone individually does what is in their self-interest, and everyone collectively is worse off for it.

The free rider problem is one familiar manifestation. In group work contexts, a free rider is someone who benefits from the group’s collective effort without contributing their fair share. The free rider’s individual rationality — minimizing personal effort while reaping collective benefit — creates a collective irrationality where the group as a whole suffers.

A vivid real-world example: an Easter egg hunt in Colorado was cancelled because parents rushed past the barriers to collect eggs for their children. Each parent acted in their child’s self-interest; the collective result was that the hunt was over in moments, no children had the fun of the hunt, and the event was cancelled in subsequent years. No one won. This is the defining structure of a social action problem.

Adam Smith and the Limits of the Invisible Hand

Adam Smith in The Wealth of Nations famously argued that individuals pursuing their own self-interest are “led by an invisible hand to promote an end which was no part of his intention” — namely, the welfare of society. This is a powerful argument for the social benefits of market competition.

But the existence of social action problems demonstrates that Smith’s claim is not a universal truth. There are situations — systematically analyzable using game theory — in which individual self-interest produces collectively worse outcomes. The Easter egg hunt, overfishing, pollution, and academic cheating are all examples.

The existence of social action problems shows why constraints on self-interest are sometimes necessary for society to benefit. Market mechanisms cannot, by themselves, resolve social action problems.

Game Theory and the Prisoner’s Dilemma

Game theory is a branch of mathematics and economics that analyzes strategic interactions — situations where the outcome for any individual depends on the choices of others. The course uses game theory to give a formal analysis of social action problems.

A game table (or payoff matrix) represents the choices available to each player and the payoffs associated with each combination of choices.

The most famous social action problem in game theory is the Prisoner’s Dilemma. In the classic formulation, two players each independently choose to either cooperate or defect. If both cooperate, both receive a moderate reward. If both defect, both receive a small punishment. If one defects while the other cooperates, the defector gets a large reward and the cooperator gets nothing.

The structure of the Prisoner’s Dilemma is that each player has a dominant strategy — defecting is individually rational regardless of what the other player does. But if both players defect, both are worse off than if both had cooperated. Individual rationality produces collective irrationality.

A Nash Equilibrium is a situation where no player can improve their payoff by unilaterally changing their strategy, given the strategies of all other players. In the Prisoner’s Dilemma, the Nash Equilibrium is mutual defection — but this is not the socially optimal outcome, which is mutual cooperation.

The Prisoner’s Dilemma models many real-world situations: businesses tempted to cut corners, nations tempted to pollute, employees tempted to shirk, students tempted to cheat.

The Game of Chicken

The Game of Chicken is another classic game-theoretic model. In the canonical version, two drivers race toward each other; the one who swerves first “chickens out” and loses face, but if neither swerves, both crash. The strategic structure differs from the Prisoner’s Dilemma: in Chicken, both players most want the other to back down, but the worst outcome is when neither backs down.

In business, versions of Chicken arise when two parties are locked in a confrontation where someone must make concessions. The key insight is that the credibility of one’s commitment not to back down affects the strategic outcome. If one player can convincingly commit to not swerving, the other player’s rational response is to swerve.

The Tragedy of the Commons

The tragedy of the commons is a special type of social action problem involving a shared resource. If a resource — a field, a fishery, the atmosphere — is held in common, each individual has an incentive to use as much of it as possible before others do, even if collective overuse depletes or destroys the resource.

Consider the classic example: two farmers share a field with a carrying capacity of four goats. Each farmer reasons: if I add a third goat, I’ll have more than my competitor. But if both add a third goat, all goats suffer because the field is overstocked, and both farmers are worse off. This is a Prisoner’s Dilemma structure.

Real-world tragedies of the commons include overfishing — particularly the collapse of the Atlantic Canadian cod fisheries in 1992, when the stock was depleted to near extinction by fishermen individually acting to maximize their catch — and the depletion of aquifers for irrigation in regions like Kansas.

The tragedy of the commons demonstrates that treating shared resources as having only instrumental value, combined with competitive self-interest, leads to their destruction. Preventing the tragedy requires either private ownership with property rights, regulatory intervention, or collective agreements backed by sufficient trust and enforcement.

Module 7: Markets and the Environment

The Nature of Value

Module 7 opens with a fundamental question about the nature of value. When we say that something has value, what exactly do we mean?

Market value is the most familiar conception in business contexts: the price at which a willing buyer and a willing seller would agree to exchange something. Market value is real and important, but it does not exhaust our conception of value.

Consider a thought experiment: in a post-apocalyptic world where you are the only survivor, a Swiss Army knife has enormous value — you can use it to open a can of food. But it has no market value, because markets require at least two parties to a transaction. There are no markets if there is only one person.

This thought experiment demonstrates that instrumental value — value derived from what something can be used for or the purposes it serves — is distinct from and broader than market value. Something has instrumental value if it is valuable for some reason — it is a means to some end. It makes sense to ask “why is this valuable?” about instrumentally valuable things.

Intrinsic value is more philosophically contested. Something has intrinsic value if it is valuable in and of itself — if it just is valuable, independent of any use or purpose. When we say something has intrinsic value, it does not make sense to ask “why is it valuable?” — it simply is. Happiness, for instance, is often cited as intrinsically valuable.

The Value of Nature

The central question of Module 7 is: what value does nature have, and does that value extend beyond what markets can measure?

Nature clearly has instrumental value: from food and water to timber and medicine, we depend on natural systems for our survival and well-being.

But what happens when we treat nature as having only instrumental value? We tend to use natural resources without restraint, because we see them only as means to human ends. The question of whether nature also has intrinsic value — value independent of human use and preference — has profound implications for environmental ethics.

If nature has only instrumental value, and if we are purely market-driven in our valuations, our tolerance for pollution will be very high: we will pollute up to the point where the cost to us of pollution equals the benefit we derive from the activities that cause it. If nature also has intrinsic value, the calculus changes: there are limits to acceptable pollution that cannot be captured by market prices.

Externalities and the Coase Theorem

A negative externality is a cost imposed on a third party who did not agree to bear it. Pollution is the paradigmatic case: a factory that discharges pollutants into a river imposes costs on everyone who relies on that river — fishermen, swimmers, communities that draw their water from it. If the factory does not pay for these costs, they are externalized — shifted onto others.

In a perfectly competitive market with no externalities, the First Fundamental Theorem tells us that resources are allocated efficiently. But when there are externalities, this efficiency breaks down: the market does not account for the full social costs of economic activity, and resources are therefore misallocated.

The Coase Theorem, developed by economist Ronald Coase, offers a market-based solution to externalities. The theorem states: if property rights over a resource can be clearly assigned to one party, and if the parties involved can bargain freely and at low cost, they will negotiate a socially optimal level of the externality through voluntary exchange. Crucially, the theorem claims the outcome is the same regardless of who receives the property rights — whether the right to pollute the river is given to the factory or the right to clean water is given to the downstream users, the parties will bargain their way to the same efficient equilibrium.

The Coase Theorem rests on several assumptions:

• Bargaining costs are low
• The damage done can be assessed
• The externality is well defined
• The parties to the damage can be identified
• The parties can legally prevent harm
• Property rights can be assigned and are alienable

In practice, these conditions are often not met. Pollution can be diffuse and its effects distributed across thousands of parties, making bargaining infeasible. Many forms of environmental harm are difficult to assess and attribute. The Coase Theorem, therefore, has important limits as a practical solution to environmental problems.

The deeper lesson is that markets can help manage externalities but cannot eliminate them. At best, market mechanisms achieve socially acceptable levels of pollution. What counts as socially acceptable depends on how society values nature — and that is an irreducibly ethical question. A society that views nature as having only instrumental value will set acceptable pollution levels very differently than a society that recognizes the intrinsic value of clean air, clean water, and biodiversity.

Module 8: Advertising Ethics

The Purpose and Power of Advertising

Advertising is not merely informational. Yes, advertising conveys information about goods and services available for sale. But it is also, fundamentally, a form of persuasion. Companies do not simply tell potential buyers that a product exists; they construct narratives, invoke emotions, exploit psychological vulnerabilities, and frame information strategically to maximize the likelihood of purchase.

The relationship between seller and buyer is one of information asymmetry: sellers know far more about their product than buyers do. The seller’s interest is to control and frame the information the buyer receives; the buyer’s interest is to obtain as much unbiased information as possible. These interests frequently conflict.

Caveat Emptor and Caveat Venditor

Caveat emptor — Latin for “let the buyer beware” — is the traditional legal doctrine placing responsibility for assessing a product’s suitability and quality on the buyer. Under strict caveat emptor, if you buy something defective, that is your problem; you should have inspected it more carefully.

The modern legal trend has substantially qualified this doctrine in favour of caveat venditor — “let the seller beware.” Sellers now bear substantial legal responsibilities: they cannot act fraudulently, in bad faith, or make false or misleading representations. There is an implied warranty of merchantability attached to most goods sold. If you buy soap, there is an implied warranty it will clean.

But the legal responsibilities of sellers do not relieve buyers of all responsibility. Buyers are still expected to make reasonable inspections of goods and to exercise basic due diligence. The ethical question is how to distribute responsibility between parties when information is asymmetric, when buyers are not always sophisticated, and when sellers have the resources and motivation to frame information misleadingly.

Information Asymmetry and Framing

The power of advertising lies partly in framing — the way in which information is presented shapes how it is perceived and evaluated.

A classic demonstration: would you drive across the street to save $30 on a $70 watch? Most people say yes. Would you drive across the street to save $30 on an $865 television? Most people say no — even though the saving is identical. The absolute dollar saving is the same, but the proportion of the purchase price differs, and this affects how people frame the decision.

Companies routinely exploit framing effects. Pricing a product at a weekly rate rather than the total cost of ownership can make an expensive item appear affordable. Emphasizing monthly payments rather than total price obscures the true cost of credit. A payday loan company advertising short-term loans without prominently disclosing a 5,853% annual interest rate is not providing the information buyers need to make a rational decision.

Joseph Heath notes that predatory financial products target not so much the poor as those who are extremely present-biased — people who heavily discount future costs relative to immediate benefits. Such individuals may not have the wherewithal, or the inclination, to calculate the true long-term cost of a transaction. This is not merely a matter of individual failing; it is a structural feature of markets that sophisticated sellers can and do exploit.

Manipulation

Manipulation involves influencing a person’s choices through means that bypass their rational agency — appealing to emotions, exploiting cognitive biases, or using subliminal or semi-conscious persuasion techniques. Advertisers know that people are susceptible to manipulation when fatigued, distracted, or emotionally aroused, and they deliberately design campaigns to exploit these conditions.

Highly sexualized imagery in advertising is an example of manipulation that exploits the “lizard brain” — the non-rational, instinctive cognitive systems that can override deliberate rational evaluation. The ethical question is whether it is acceptable to deliberately target and exploit consumers’ cognitive vulnerabilities for commercial gain.

The course concludes that while consumers cannot be absolved of all responsibility for their own choices, sellers who deliberately manipulate consumers are acting unethically — they are using people as mere means to commercial ends rather than treating them as rational agents deserving of honest information.

Advertising and Social Perception

Advertisements do not just sell products; they construct and reinforce social perceptions — of gender, race, beauty, success, and identity. Historical advertising has been deeply sexist, portraying women as domestically confined, physically weak, or as objects of male desire. Gender stereotypes permeate much advertising even today, associating intelligence and achievement with masculinity, and appearance and domestic virtue with femininity.

These representations are not merely offensive — they actively harm the people they depict by constraining their social self-perception and narrowing the range of identities and aspirations that seem available to them. Advertising that tells young girls that they are primarily valued for their appearance, or that they must conform to an impossible ideal of beauty, is not ethically neutral. It affects how people perceive themselves and each other, and it has real consequences for well-being and opportunity.

The ethical dimension of advertising therefore extends beyond individual transactions to the question of advertising’s role in shaping culture and social values.

Module 9: Governance

Market Economies and the Division of Labour

Module 9 opens with a question about the social function of market economies. Markets allow us to accomplish collectively what no individual could accomplish alone. As Joseph Heath puts it: “The most persuasive argument in support of the market economy has always been that it facilitates cooperation, enabling individuals to engage in mutually beneficial interactions that otherwise might not occur.”

The point is made vivid through J.S. Mill’s example of the wool coat: the production of a single garment involves the coordinated labour of farmers, wool processors, spinners, dyers, weavers, and tailors — none of whom need to know the others, and all of whom coordinate their productive activities through market prices and the division of labour.

A key precondition for market economies to function is trust — not personal trust in individuals, but trust in the market system to send the right signals and coordinate behaviour. We trust that when we specialize in one area, others will specialize in others, and that through trade we will all be better off.

The Firm as a Nexus of Contracts

A firm is another mechanism for coordinating the division of labour. Rather than coordinating through market prices, a firm coordinates through a set of contracts — employment agreements, internal hierarchies, job descriptions, and incentive structures. The firm, like the market, depends on trust: the trust that the people with whom one works will do what they have agreed to do.

This trust can break down in a systematic and predictable way. Luis Cabral observes that much analysis in industrial organization treats the firm as a “black box” that mechanically converts inputs into profit. But real firms are composed of individuals with their own interests, which may diverge from the interests of the firm.

The fallacy of division is the error of inferring that what is true of a whole must be true of its parts. Even if the goal of the firm is to maximize profit, it does not follow that this is the goal of any given employee. What is true of the whole is not necessarily true of the parts.

The Principal-Agent Problem

The principal-agent problem arises whenever one party (the agent) acts on behalf of another (the principal), and there is an asymmetry of information between them — the agent knows more about what they are doing than the principal does.

This structure pervades organizations:

• Investors and the board of directors
• The board and the executive
• The executive and middle management
• Management and front-line workers
• Firms and their customers

In each case, the party tasked with doing the work (the agent) knows more about what they are actually doing than the party overseeing that work (the principal). This creates opportunities for agents to act contrary to the interests of principals.

Asymmetric information enables a range of opportunistic agent behaviours:

• Shirking duties
• Nepotism and favouritism in compensation or promotion
• Dealing in non-arm’s-length transactions
• Consuming excessive company perks
• Taking no risks to avoid being fired (excessive risk-aversion at the expense of the firm)
• Taking excessive risks to earn large bonuses (excessive risk-taking at the expense of the firm)
• Prioritizing short-run personal gain over the long-run health of the organization

Incentives and Rational Maximization

Economics assumes that humans are rational maximizers — we respond predictably to incentives, choosing the action that produces the greatest net benefit to ourselves given costs and constraints.

This assumption has both descriptive and normative dimensions. Descriptively, it is largely correct: people do respond to incentives in predictable ways. Normatively, acting as a rational maximizer is not always justified: the fact that a choice maximizes one’s own benefit does not, by itself, make it ethically defensible.

The course examines several examples:

• A student choosing Company B (fewer hours, more pay) over Company A is rationally justified in their choice. There is no moral failing in preferring more compensation for less work.

• RBC’s decision to replace Canadian workers with temporary foreign workers (who could be paid 15% less) was rational maximization. Whether it was ethically justified is more contested: some argue it was within RBC’s rights as a rational economic actor; others argue it violated a duty to existing employees and the communities in which RBC operates.

• A biodiesel company that repeatedly shipped the same trainload of product across the Canada-US border to collect government credits was responding to perverse incentives — legal loopholes that made a fraudulent-spirited activity profitable. The common sentiment “just because it’s legal doesn’t make it okay” captures the intuition that legal compliance does not exhaust ethical obligation.

• Stephen Elop’s tenure as Nokia CEO illustrates a particularly vivid principal-agent problem. Elop was given management incentives that effectively rewarded him for driving down Nokia’s share price, selling the core handset business to Microsoft (his former employer), and collecting a $25 million bonus — all while the shareholders and employees of Nokia bore the costs.

The ethical principle that emerges is this: acting as a rational maximizer is ethically justified when it does not exploit asymmetric information or perverse incentives to the detriment of those who depend on you. The principal-agent problem is, at its core, an ethics problem: it arises from the temptation to exploit informational advantages in ways that breach one’s duties.

Module 10: Strategic Negotiation

Resolving Social Action Problems and Ethical Disputes

Module 10 takes up two interrelated challenges: how to avoid or escape social action problems, and how to negotiate through ethical disputes.

Social action problems are pernicious because no single party can solve them unilaterally. The individual rationality of each party drives them toward the collectively suboptimal outcome. The key is to identify strategies that make cooperation individually rational.

Types of Coordination Games

The course analyzes several types of coordination games using game-theoretic tools:

A pure coordination game is one where the players have identical interests — both benefit from coordinating their choices and neither benefits from failing to coordinate. Driving on the road is a pure coordination game: both drivers benefit if they drive on the same side of the road. In the absence of direct communication, coordination is achieved through shared experiences and common assumptions — in Canada, everyone knows to drive on the right.

An assurance game (or Stag Hunt) is one where cooperation produces the best outcome, but cooperation is only individually rational if the other player can be trusted to cooperate as well. The name comes from Rousseau’s example: hunters can catch a stag if they cooperate, but each hunter can defect and catch a hare on their own. The stag (cooperation) is better for everyone, but it requires trust that the other hunter will not defect.

A battle of wills (or battle of the sexes) is a coordination game where both players want to coordinate, but have opposing preferences about how to coordinate. One player prefers outcome A; the other prefers outcome B; both prefer any coordination to no coordination. The challenge is reaching an agreement when preferences conflict.

Key Lessons from Game Theory for Negotiation

From the analysis of coordination games, the course derives four key take-aways:

1. Direct communication is a crucial element in solving coordination problems. Even if it cannot guarantee the desired outcome, it dramatically increases the probability of successful coordination.

2. In the absence of direct communication, look to common assumptions and shared experiences to “predict” what the other party will do and to signal one’s own intentions.

3. Look for common interests with the other party, even in adversarial situations. Recognizing shared interests transforms a zero-sum framing into a positive-sum one.

4. Trust among parties can help overcome the pernicious logic of a social action problem. A repeated game — where parties will interact again in the future — changes incentives: defection today may cost future benefits, making cooperation individually rational.

Positional Bargaining vs. Interest-Based Bargaining

A central distinction in negotiation is between positional bargaining and interest-based bargaining.

Positional bargaining is the familiar mode of negotiation in which each party states a position and then gradually makes concessions. The focus is on the positions — what each party is demanding — rather than on the underlying interests those positions represent. Positional bargaining is inefficient: it tends to produce outcomes worse for both parties than a well-conducted interest-based negotiation.

Interest-based bargaining (associated with the “Getting to Yes” tradition developed by Roger Fisher and William Ury at the Harvard Negotiation Project) focuses on the underlying interests that motivate each party’s positions. By identifying what each party actually needs and cares about — rather than just what they are demanding — parties can often discover creative solutions that satisfy both sides’ interests more fully than any positional compromise.

The fixed-pie fallacy is the erroneous assumption that negotiation is necessarily zero-sum — that any gain for one party must come at the expense of the other. Many negotiations are not zero-sum: the parties have compatible underlying interests that can both be satisfied if the negotiation is conducted creatively.

A classic example: two sisters both want an orange. A positional bargainer might split the orange in half. But if one sister wants the juice and the other wants the rind for baking, both can get everything they need from the same orange — a solution only available once the underlying interests are revealed.

Strategic Moves

Strategic moves are commitments or threats that change the game by altering the other party’s expectations about what one will do. A credible commitment to a particular course of action — one that the other party believes one will carry out — can change the strategic structure of a situation and produce better outcomes.

In the Game of Chicken, for instance, a player who visibly disables their own steering wheel has made a credible commitment not to swerve. This forces the other driver to swerve. Strategic moves can transform a situation where mutual defection or mutual conflict is the equilibrium into one where a more cooperative or mutually beneficial outcome becomes achievable.

The ethical dimension of strategic moves concerns their legitimacy: some strategic moves (credible commitments that serve mutual interests) are legitimate; others (threats that exploit power imbalances, commitments designed to harm others) are not. The test is whether a strategic move serves the genuine interests of all parties or merely exploits informational or power asymmetries.

Module 11: Whistleblowing and Codes of Ethics

Why Be Ethical?

Module 11 confronts the question that underlies much of the course: why be ethical? The moral defeatist argues that ethics is a luxury one cannot afford in a competitive world — that being ethical will disadvantage one, and that the ethicist’s injunction to do the right thing because it is right will not persuade anyone who is seriously tempted to act unethically.

The course offers a practical answer: because one’s profession and organization will expect it, and because others will call one out if one does not live up to those expectations. Codes of ethics give institutional form to this expectation.

The Functions of a Code of Ethics

A code of ethics serves multiple functions:

1. It represents the ethos of an organization. An ethos is the characteristic spirit of a culture or community — its values, aspirations, and norms. A code of ethics articulates what an organization aspires to be. For a university, this means articulating what it means to take academic integrity seriously. If a university becomes known for tolerating cheating, degrees from that institution lose their signalling value. The organization has an interest in its members taking the code seriously.

2. It requires action from those within the organization. A code that is not acted upon quickly becomes a liability. Top-down articulation of values is necessary but not sufficient; members of the organization must themselves be committed to the stated values. The University of Waterloo’s Policy 71 (Student Discipline) requires any member of the university community who has reason to believe an academic offence has been committed to report it to the relevant instructor or associate dean within five working days.

3. It shapes organizational culture. A culture where ethics is taken seriously produces better outcomes for everyone — fewer violations, more trust among colleagues, and a reputation that supports long-term organizational success. As Lynn S. Paine argues in the Harvard Business Review, ethics and organizational integrity are not just compliance burdens — they are sources of competitive advantage.

Case Study: The Ikea Opening and Journalism Ethics

The Winnipeg Ikea opening of 2012 illustrates what happens when members of a profession allow professional integrity to be compromised by gifts and favours. Ikea invited journalists to a lavish pre-opening event with free food, alcohol, music, and gifts. Many journalists attended.

The Canadian Association of Journalists code of ethics is clear: journalists do not solicit gifts or favours for personal use, and must return unsolicited gifts of more than nominal value. Attending the event and accepting Ikea’s hospitality violated this code.

The ethical reasoning is straightforward: a journalist who accepts gifts from a company they are reporting on loses their credibility as an impartial observer. Their report will be seen — accurately or not — as having been purchased. This is not merely a matter of perception; it is a genuine conflict of interest that undermines the journalist’s ability to exercise independent professional judgment.

The case illustrates a general principle: professional codes of ethics exist precisely to protect the integrity of the professional relationship. When that integrity is compromised — even by accepting gifts of “nominal” value — the professional relationship itself is damaged.

Whistleblowing

Whistleblowing is the process by which a legal or ethical issue internal to an organization is reported externally to an independent body — regulators, the media, law enforcement. The goal is to stop, mitigate, or prevent harm.

There is a presumption that an employee should be loyal to their employer. But loyalty does not require complicity in illegal or seriously unethical conduct. When an organization engages in criminal activity, flagrantly violates government regulations, or ignores codes of ethics to the detriment of the public, employees are not only permitted but sometimes morally required to act.

The preferred sequence is:

1. Try to address the problem internally — through supervisors, internal reporting mechanisms, ethics hotlines.
2. If internal mechanisms fail or are deliberately suppressed, then blow the whistle externally.

Case Study: TransCanada Pipelines

The case of Evan Vokes, an engineer who blew the whistle on TransCanada Pipelines, illustrates the real-world stakes of whistleblowing. Regulations required that pipeline inspectors be independent of the welding subcontractors — so that inspectors could assess weld quality without fear of reprisal from the welders. TransCanada was instead allowing welders to hire their own inspectors, creating perverse incentives: welders had reason to hire lenient inspectors, and inspectors had reason to pass substandard work lest they lose the contract.

The code of ethics of the Association of Professional Engineers and Geoscientists of Alberta is unambiguous: engineers shall hold paramount the health, safety and welfare of the public. When organizational misconduct threatens public safety, the ethical obligation to act is clear — and sometimes the only available avenue is external whistleblowing.

Whistleblowing carries real costs: professional retaliation, social ostracism, legal harassment. The state of whistleblower protection in Canada remains inadequate, and those who blow the whistle often suffer disproportionate personal costs. This is a social failure: a society that punishes truth-tellers, even when they are acting to protect the public, creates perverse incentives against ethical courage.

Module 12: Synthesis and Concluding Thoughts

Ethics is Not Optional

Module 12 draws together the threads of the course. The central lesson, repeated from the opening module, is that avoiding ethical issues in the workplace is not a viable strategy. One can choose to be unethical — to take the route of ethical defeat — but the ethical issues do not thereby disappear. They remain, and they have consequences for one’s professional life, one’s organization, and the people affected by one’s decisions.

The Overarching Takeaway

The course’s overarching claim is this: it is possible to make money — a lot of money — and still be ethical while doing it. One does not need to violate the code of ethics of one’s profession in order to succeed. One does not need to engage in deceptive or exploitative business practices in order to compete. One does not need to treat the environment as an infinitely exploitable resource in the name of profit.

This is not wishful thinking. It is grounded in the substantive arguments made across the twelve modules:

• The social function of markets depends on ethical competition. Heath’s Ten Commandments articulate what ethical competition looks like.
• The long-run success of organizations depends on trust — with employees, customers, and stakeholders. Trust is undermined by unethical conduct.
• Codes of ethics and professional norms are not merely symbolic; they create accountability structures that have real consequences.
• Ethical analysis, rigorously applied through the decision-making model, can resolve or at least clarify most moral disputes that arise in organizational life.

The Poem and Character

The course closes with an unattributed poem that captures the trajectory the course has been following:

Watch your thoughts before they become words. Watch your words before they become actions. Watch your actions before they become habits. Watch your habits before they become your character. Watch your character before it becomes your destiny.

This poem is a perfect encapsulation of virtue ethics — the tradition that began with Aristotle and holds that ethical life is not just a matter of following rules or calculating consequences, but of developing the kind of character from which good actions naturally flow. The goal of ethical education, in this tradition, is not to teach students what to do in every possible situation, but to cultivate the habits of mind and heart that make good decisions habitual.

Integrated Themes and Cross-Cutting Concepts

The Is/Ought Gap in Business Ethics

Throughout the course, the is-ought gap recurs as a critical analytical tool. Business actors frequently justify ethically questionable practices by appealing to how things are — “everyone does this,” “this is how the industry works,” “competition demands it.” These appeals all commit the same error: they attempt to derive a normative conclusion (this practice is acceptable) from a descriptive premise (this practice is common). The is-ought gap reminds us that the prevalence of a practice is no justification for it.

Self-Interest, Social Welfare, and the Limits of the Invisible Hand

The course engages deeply with the relationship between individual self-interest and collective welfare. Adam Smith’s Invisible Hand captures a genuine and important insight: markets, through the mechanism of competition, can align individual self-interest with social welfare in many contexts. But the analysis of social action problems — the Prisoner’s Dilemma, the tragedy of the commons, the Game of Chicken — shows that this alignment is not universal. There are systematic conditions under which individual rationality produces collective irrationality, and these conditions are not rare edge cases; they pervade economic and organizational life.

The practical implication is that markets need ethical underpinnings. Competitive markets function well only when participants compete on price and quality, minimize externalities, respect information rights, and refrain from opportunistic behaviour. Ensuring these conditions requires not just legal regulation but ethical commitment.

The Relationship Between Law and Ethics

A recurring theme is the relationship between legal compliance and ethical conduct. The course consistently argues that legal compliance is a necessary but not sufficient condition for ethical conduct. Just because something is legal does not make it okay. The history of business is replete with legal practices that are nonetheless deeply unethical — from historical forms of labour exploitation that were legal to contemporary practices of predatory lending that comply with the letter of the law while violating its spirit.

Conversely, not every ethical obligation is captured by law. Codes of ethics, professional norms, and the obligations that arise from relationships of trust and care extend ethical requirements beyond what law mandates.

Moral Pluralism in Practice

The course’s commitment to moral pluralism is not merely theoretical. In practice, it means that when confronting an ethical problem, one should draw on multiple frameworks:

• Consequentialist analysis (utilitarianism): what are the likely consequences for all affected parties? How can the net balance of well-being be maximized?
• Deontological analysis: does any proposed course of action violate a duty or right? Are persons being treated as ends or merely as means?
• Virtue-ethical analysis: what would a person of good character do in this situation? What does this decision reveal about the kind of person or organization one is?
• Care ethics: what obligations arise from the particular relationships of care and dependency involved?

These frameworks will not always converge on the same answer. When they do converge, one can be confident in the conclusion. When they diverge, the work of moral reasoning intensifies — one must weigh the competing considerations carefully and be prepared to defend one’s judgment.

Ethics as a Skill

Throughout, the course insists that ethical reasoning is a skill — something that can be learned, practiced, and developed. It is not a matter of mere opinion, and it is not reducible to emotion or personal preference. Rigorous ethical reasoning can be brought to bear on complex practical problems, and it can produce conclusions that a reasonable, informed person would accept.

The decision-making model, the game-theoretic tools for analyzing social action problems, the conceptual distinctions between facts and values, prudential and ethical motivations, private and public morality — all of these are tools for bringing rigour and clarity to ethical reasoning. They do not replace judgment, but they discipline it.

The student who leaves this course equipped with these tools, and committed to integrating them into their professional life, is better prepared to succeed in a world where ethical choices are unavoidable — and where the quality of one’s ethical reasoning has real consequences for oneself and for others.

Reference Concepts and Thinkers

Key thinkers referenced in this course:

• Aristotle — virtue ethics, practical wisdom (phronesis), character as the foundation of moral life
• Jeremy Bentham — founder of utilitarianism; happiness as the criterion of morality
• John Stuart Mill — utilitarianism; the Greatest Happiness Principle; the wool coat example
• Immanuel Kant — deontology; the Categorical Imperative; duty-based ethics
• Carol Gilligan / Nel Noddings / Virginia Held — ethics of care; relational morality; critique of abstraction in dominant theories
• Adam Smith — The Wealth of Nations; the Invisible Hand; the social benefits of market competition
• Milton Friedman — shareholder primacy; “the business of business is to maximize profit”
• Albert Carr — “Is Business Bluffing Ethical?”; the poker analogy; rejection of business ethics
• Machiavelli — The Prince; the descriptive/normative conflation in business leadership discourse
• Joseph Heath — Morality, Competition, and the Firm; the market failures approach to business ethics; Heath’s Ten Commandments
• Ronald Coase — the Coase Theorem; property rights and externality internalization
• R. Edward Freeman — stakeholder theory; the triple bottom line
• Roger Fisher and William Ury — Getting to Yes; interest-based bargaining; the fixed-pie fallacy
• Lynn S. Paine — “Managing for Organizational Integrity”; ethics and organizational culture
• Luis Cabral — Industrial Organization; the firm as a nexus of contracts
• Evan Vokes — TransCanada Pipelines whistleblower; professional engineering ethics
• Garrett Hardin — tragedy of the commons
• David Hume — is-ought gap (Hume’s guillotine)

Key concepts: