Prudence is defined as a reasonable standard of judgment, management, and conduct under the circumstances, based on what was known or should have been known at the time a decision was made or the action was completed. Prudence involves a duty of care to others. The duty of care is increased in circumstances when there is a considerable danger of harm to public safety or economic risk to ratepayers. For example, in determining whether a defendant's conduct was reasonable, the defendant's conduct is compared to the conduct of a reasonable person in similar circumstances.
The prudent person rule is a hypothetical person used as a legal standard especially to determine whether someone acted with negligence. It is a rule that allows a fiduciary, particularly a trustee, to manage another's business and invest another's money with the same skill and care that a person of average prudence and intelligence would use in managing their own affairs or investments.
[Last updated in May of 2022 by the Wex Definitions Team]