Gresham's Law
Version 1.0.0 · Updated 2026-07-30
CORE DEFINITION
"Bad money drives out good." When two currencies circulate simultaneously with the same face value but different intrinsic value, people will hoard the "good money" (the currency of higher value) and use the "bad money" (the currency of lower value) for transactions, eventually causing the good money to withdraw from circulation.
SCAFFOLDING EFFECT
Reduce cognitive load
Early warning of adverse selection. It explains why "high-quality products" are sometimes driven out of the market by "low-quality products" (e.g., the "market for lemons"), and also reveals the importance of "incentive compatibility" in institutional design: the "good money" must have the incentive to stay in the "game".
Anchor fast decisions
Bad money drives out good: when two currencies are legally equivalent in value but differ in actual content, good money is hoarded and melted, while bad money circulates. The price difference incentivizes arbitrage, leading to the disappearance of good money.
MINIMUM ACTION
In progress 0/3Practice this model in one real situation:
account_treeGenealogyexpand_more
menu_bookReferencesexpand_more
Source support: Explicit
- en.wikipedia.orghttps://en.wikipedia.org/wiki/Gresham%27s_lawverified
PRIVATE NOTES · Only visible to you
SAVED Q&A
ENTRY Q&A · Private saving available
Ask with a clear boundary
thinkingmodels answers from published entry context only.
Your question is sent to thinkingmodels. The answer uses public entry context only.
RELATED MODELS