4 ms·

What's the relevance of Gresham's Law here? Not criticizing, just genuinely curious.

• dredmorbius 12y ago
  The viscous cycle element. Grisham's Law, generally, is a "bad foo drives out good foo", more specifically, when the costs of distinguishing good foo from bad foo are high, or when the market doesn't recognize a distinction between the two. It was coined (so to speak) as an observation that "bad" (e.g., debased) currency drives out "good" (high-specie) currency. It shows up in Akerloff's "The Market for Lemons" and many other places. I've made something of a hobby of collecting references. For more: https://www.reddit.com/r/dredmorbius/comments/2h63fp/is_greshams_law_a_special_instance_of_a_more/ https://www.reddit.com/r/dredmorbius/comments/2h63fp/is_gres...
  • s_q_b 12y ago
    >...when the costs of distinguishing good foo from bad foo are high... Ah, there's the part I was missing. I didn't think of it beyond government regulation. Interesting insight.
    • dredmorbius 12y ago
      It seems to arise out of several possible factors. In the case of money, it's the statutory definition of value. Since specie has value independent of the nominal value (though usually below nominal, hence, seigniorage), where there's a positive, valuable metals are hoarded. In most of the other instances noted, value determination is by other means, some set by market, some by difficulty in full value assessment. But in all cases there's an informational asymmetry, where the party who's aware of the true value of a good (or service) may choose to act in ways which maximize benefits (or minimize losses) that are both 1) not fully captured in market value and 2) aren't accessible to the counterparty.