Legal Definitions - Gresham's law

Gresham's law describes an economic principle where, if two forms of currency or goods have the same legal value but different intrinsic values, the one with the lower intrinsic value will tend to circulate more widely, while the one with higher intrinsic value will be hoarded or disappear from circulation. More broadly, it refers to situations where inferior products, services, or practices drive out superior ones in a market or system.

Here are some examples illustrating Gresham's law:

• Currency Example: Imagine a country where both newly minted, shiny coins and older, worn-out coins of the same denomination are legally accepted at the same value. People will naturally prefer to keep the new, pristine coins, perhaps saving them or using them for special occasions, while spending the older, worn-out coins for everyday transactions. Over time, the "inferior" worn coins become the predominant currency in active circulation, as the "superior" new coins are hoarded.

  This illustrates Gresham's law because the less desirable, worn coins (inferior intrinsic value due to wear) displace the more desirable, new coins (superior intrinsic value) in daily transactions, as people spend the less valuable option first.

• Product Market Example: Consider the market for reusable shopping bags. One brand produces high-quality, durable bags made from recycled materials, designed to last for years. Another brand offers very cheap, flimsy bags that tear easily and are made from virgin plastic. If consumers primarily focus on the immediate low cost and convenience, and there's no strong incentive or regulation to choose durability, the "inferior" cheap, flimsy bags might flood the market and become the dominant choice, despite the existence of a "superior", more sustainable option.

  Here, the "inferior" cheap bags displace the "superior" durable bags because their lower price point and immediate availability make them more attractive to a broad consumer base, even though their quality is lower.

• Information Quality Example: In the context of online news, imagine a platform where both thoroughly researched, fact-checked articles and sensationalized, quickly produced, and often inaccurate headlines compete for attention. If the platform's algorithms or user behavior prioritize immediate clicks and shares over accuracy and depth, the "inferior" clickbait content might spread rapidly and widely, dominating news feeds and public discourse. The "superior", well-researched journalism, which takes more time to produce and might be less immediately engaging, could struggle to gain visibility.

  This demonstrates Gresham's law as the "inferior" sensationalized content (less accurate, less depth) displaces the "superior" well-researched journalism because its format and presentation are more effective at capturing immediate attention and driving engagement in the current digital environment.