It's a Fine Line Between Love and Hate....

... and between lots of other things too.

Earlier this week, the billionaire head of the Galleon Group, a hedge fund, was arrested and charged with conspiracy and securities fraud, having profited, as the New York Times put it, "not from his trading genius but from his Rolodex" (click here for the initial story, here and here for selected follow-up pieces).

Information is life-blood of smart investing, and most of it is of course obtained legally. But inside information is, by definition, non-public and material to an investor -- whether or not the information ends up making that investor money (although, of course, it usually does, or it wouldn't be "material").

The problem is that the line between aggressive research and insider trading is often a fine one. In a Times DealBook blog, Leslie R. Caldwell, the co-chief of the white-collar crime division at the law firm Morgan, Lewis & Bockius, says that insider trading can be difficult to prove: "The line between buying legitimate research, trading rumors and gossip, and illegally paying for market-moving information can be complicated." (Click here for the complete DealBook post)

So ... we should just throw up our hands and walk away? No.

But this case got me thinking about fine lines and ethical decision-making. Ethical problems are at their thorniest when the choices are less than clear: not between an obvious good and an obvious evil, but between two apparent goods, or two apparent evils. How can we determine the "righter" thing to do?

There are two key questions to ask: one "pre" and one "post".

The "post" question is, What will be the consequences of my choices? You can never be sure of all the possible consequences of a decision (that's why we have that phrase, "unintended consequences"!), but it's worth taking the time to explore as many potential ramifications as possible: the probable and the improbable, the preferable and the less preferable.

Unless, of course, you are a Kantian, and live by "categorical imperatives" -- if one of your categorical imperatives, for example, is "Always tell the truth", then the potential consequences of telling the truth in any particular situation aren't relevant. The proper course of action is to tell the truth.

For the categorical types, the "pre" question is more important: What's my motivation for making this choice? There's no honor in doing the right thing if doing the right thing is what you want to do anyway; there's only honor in it if your inclination is not to do it, but your sense of duty or honor or will compels you.

The problem with both of these approaches, while important, is that we humans are so good at rationalizing: we concentrate on those consequences that are preferable (whether or not they are probable), and we concentrate on those motivations that show us off in the best light.

But that still doesn't mean that you have a free pass to do whatever you like....