The Prudence Principle
How being cautious about gains and losses shapes everything from accounting to algorithms to anxiety
The Prudence Principle is the idea that we are strong about confirming our losses while also hesitant to confirm gains. I was first introduced to this concept in Financial Accounting (COMM 293) but realize that its surprisingly in a lot of fields!
Computer Science Connection
In computer science, runtimes are essential towards determining what is the best fit for a specific application or problem - what algorithms and data structures should I use?
Big-O notation...
I thought that it was funny how we always use the upper bound regardless of how rare reaching that bound is - I mean, if a runtime is roughly constant 99.99% of the time, using an upper bound much higher seems inaccurate no?
But we can't afford that small chance. That small chance is what shuts down companies when they least expect. The Prudence Principle is used here not just to be extra cautious, but have your applications ready for the worst-case scenario - the question is, can you take that loss? If not, you better come up with something better!
Life Connection and Takeaways
Beyond the classroom, the Prudence Principle helps with calming anxiety too - at least for me. Before finals, I often panic, worrying I'll fail, and discover I'm not cut out for this field.
Stop. Lets apply the Prudence Principle and imagine the worst-case scenario.
I fail that exam. I get a zero on it. The TA's laugh as they mark my paper.
Wow, that stings.
But realistically, is it all that bad? Will I remember this in 5 years? Will I lose every SINGLE opportunity because of this one exam - nope.
The Prudence Principle shines in places like this, rationalizing your situation and making you realize, its really not that bad - the Earth will keep spinning. I hope you can apply it as well, its been great for calming my mind :)
Cheers,
Ramika