Swarthmore professor Barry Schwartz says rules and incentives are an “insurance policy against disaster, but [they don’t] produce excellence.” In the recent book, Practical Wisdom: The Right Way to Do the Right Thing , Schwartz and co-author Kenneth Sharpe, also a Swarthmore professor, say what is needed is not more bureaucracy. Instead, society needs the Aristotelian ideal that trumps all others — practical wisdom. Knowledge at Wharton recently sat down with Schwartz to discuss why individuals fail to do the right thing, what practical wisdom looks like in practice and what organizations can do to regain people’s trust. An edited version of the transcript appears below. Knowledge at Wharton: You note that there is a collective mistrust of the institutions that surround us. Why is that? Schwartz: I don’t want to be monomaniacal about this. There are probably many reasons, not one, for this distrust of institutions.…