Ethical dilemmas are always tough to articulate, so don't feel badly that this question is giving you problems. The situation you outline is indeed an ethical challenge, especially since you did nothing wrong, yet are faced with a decision which had to be addressed regarding the "right" thing to do (or not) based on the actions or situation of someone else. These types of dilemmas are awkward, since they put you in a situation where you feel pressure to respond, yet by doing nothing, you can sometimes avoid "getting involved." Remember the b-schools are looking for insight into what makes you tick and how you make decisions, so the key will be in articulating how you felt during this situation and how you went about processing the information which led to your decision. I like how you outlined the things you thought about but did not do, since this also provides insight into who you are and how you have come to be that way. Don't miss the chance to dip into your background to explain why you are the way you are. All this will help reveal to the adcom things about you which can help them make their decision.
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