What the Doctrine of the Mean can teach you about making better financial decisions

Let’s rap philosophical. 

One of the most influential and well-known philosophers in history was Aristotle. 

As part of his ethics, he advocated something called “The Doctrine of The Mean”. 

This doctrine says (and I am paraphrasing) that virtue lies between two vices. 

Think of a straight line with a vice on each side and virtue smack-dab in the middle.

Now, pick a human virtue. 

The Doctrine of The Mean says that the virtue taken in either direction becomes a vice or that a deficiency or an extreme of that virtue is a vice or a fault. 

So, for example, cowardice and recklessness are supposed to be two opposite extremes of the virtue of courage. 

Cowardice is a deficiency in courage and recklessness is an overabundance of courage. 

In Aristotle’s view, or at least the view ascribed to him, there is such a thing as “too much of a good thing” and the ideal situation is to find “the golden mean”. 

Mayhaps you have heard of this idea?

Problem is recklessness isn’t an extreme version of courage. It’s a total lack of courage. 

Courage means that you recognize the reality of the danger involved in a situation and act in accordance with your own chosen values. In a sense, you are courageous for acting in a way consistent with reality and with your own values. Sometimes that means saving a defenseless child from being hit by a car but more often than not it means standing up for yourself in the face of 1,000 dissenting voices. Relying on your own judgment instead of caving in to the feelings of others.

The play “12 Angry Men” is a great example of this. 

Recklessness is not an extreme version of courage at all. Not even close. In fact, it’s the opposite. It means total disregard for danger (and thus the reality of a situation). Reckless people don’t stand up for themselves or for anyone else. In fact, by definition, they’re self-destructive. A reckless person isn’t adhering to any values. They’re not adhering to the reality of a situation. They’re not adhering to anything. 

Another example:

Humility ——- self love ——- Arrogance

Arrogance is supposed to be an excess of self love. Humility is a deficiency of it. 

But an arrogant person doesn’t love himself at all. The fact that he has to go around telling everyone how great he is or that he’s superior to everyone else is just approval-seeking. He actually lacks self-esteem and is trying to make up for it by getting approval from other people. If a braggart fails to convince people of his superiority, he is destroyed. 

How is that self-love, exactly?

I don’t get it. 

Anyway… what is the point of all this? 

Well think about how often you’ve heard the idea “too much of a good thing”. 

I guess on one end you have “too little” and on the other you have “too much” and somehow… right in the middle is where you’re supposed to be.

It’s why people believe there can be “too much freedom” or “too much capitalism” and that a “mixed economy” is a nice middle ground between socialism and capitalism. 

It’s why people are obsessed with moderation in everything. 

And it’s why some people ridicule other people for being “extreme” in their viewpoints, or consistent in word and deed, instead of being more “moderate” in their stance on political issues or maybe just how they live their day to day life. 

Being flexible and “practical” is seen as more virtuous than having integrity.

Consistency is the enemy for a person who believes in “moderation”.

The way this plays out in personal finance is really interesting, too. 

Popular advice says not to put all you eggs in one basket. To diversify. To be moderate in your exposure to everything. That you should not be extreme in your saving or investment strategy. 

This is also the idea behind index fund investing. Middle of the road. You buy some winners, some losers, and hopefully everything evens out in the end. You’re not stock picking for 1,000% returns but you’re also not avoiding the stock market altogether. As a result, you seek “average returns”. 

And in life insurance… where advisors recommend not putting “too much” money into whole life insurance (or any life insurance) because… because… well they can’t come up with a very good explanation other than “you should diversify to reduce the risk of loss”. 

Which is funny because… insurance is the only financial tool that transfers and eliminates financial risk. 

Knowing how to use it in a financial plan makes good sense. It’s not an issue of diversifying. It’s an issue of risk management. 

Anywho, let me hop off my soapbox. You’ve probably had enough of me rambling for today. If you want to read the stuff I don’t publish on the blog, consider joining my email list below.

David Lewis, AKA The Rogue Agent, has been a life insurance agent since 2004, and has worked with some of the oldest and most respected mutual life insurance companies in the U.S. during that time. To learn more about him and his business, go here.