Gresham's Law is bad money drives out good when both are legally equivalent. It sits in the Cognition dimension (COG) of the Human Behavior Taxonomy™ as element HBT-COG-0349, within the Economics family. The core principle: bad money drives out good when both are legally equivalent. In incentive terms, it matters because it changes the payoff people perceive before they choose — which means it can be designed for, or exploited.
Scientific Definition
Bad money drives out good when both are legally equivalent.
Plain-English Definition
Bad money drives out good when both are legally equivalent.
Feynman Explanation
The easy-to-fake replaces the hard-to-fake.
Core Principle
Bad money drives out good when both are legally equivalent.
Mechanisms
Pending editorial review.
Bad money drives out good when both are legally equivalent.
Pending editorial review.
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Incentives can reward cheap signals over real value.
Inputs (Triggers)
Pending editorial review.
Outputs (Behaviors)
Pending editorial review.
Behavioral Signature
The easy-to-fake replaces the hard-to-fake.
Examples
- Low-quality content crowds out high-quality content in attention markets.
- Incentives can reward cheap signals over real value.
Pending editorial review.
Original analysis from The Incentives Lab — how this element behaves inside real payoff structures.
Why this element matters to incentive design
Most organizations meet this element as a personnel problem. It is not one. The mechanism underneath it is straightforward: bad money drives out good when both are legally equivalent. You can recognize it in the field by its signature: the easy-to-fake replaces the hard-to-fake. Every element in the Cognition dimension changes the perceived payoff of an action before the action happens, which is exactly where incentive design has leverage.
How it gets exploited
Left undesigned, incentives can reward cheap signals over real value. It is amplified whenever incentives can reward cheap signals over real value. Inside organizations that shows up as incentives can reward cheap signals over real value. The pattern is the same one Goodhart's Law describes: the measurable proxy attracts the effort, and the purpose behind it quietly loses funding.
How the Lab designs around it
The redesign move is to design quality signals that are costly to fake. Watch for it at the boundaries: handoffs, promotions, incident reviews, and budget cycles are where this element gets its power.
Famous Experiments
Pending editorial review.
Design Principles
- Design quality signals that are costly to fake.
Measurement Approaches
Pending editorial review.
Evidence
Pending editorial review.
Pending editorial review.
The Perverse Incentive Lens™
How this behavior is exploited — and how to redesign around it.
- Design quality signals that are costly to fake.
Pending editorial review.
Pending editorial review.
Interactive Mini Network
Click any neighbor to re-center the graph and follow the threads of connection.
Knowledge Graph Neighbors
Auto-linked to the rest of the Human Behavior Taxonomy by family, domain, dimension, and shared keywords.
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The study of how real humans actually decide — bounded, social, emotional, and inconsistent.
With clear property rights and low transaction costs, parties negotiate to efficient outcomes.
Specialize in what you give up the least to do.
Complements raise each other's value; substitutes lower it.
Fixed costs don't scale with output; variable costs do.
Innovation destroys old industries and creates new ones.
Each additional unit produces less marginal benefit.
A long-run planner self in conflict with a short-run impulsive self.
Owning something raises its valuation — sellers want more to give it up than buyers will pay to acquire.
The mythical fully rational, self-interested, utility-maximizing agent neoclassical models assume.
One party has more or better information than another.
Where Gresham's Law is cited in the corpus
Essays, field guides, and diagnostics from The Incentives Lab that apply this element.
- EssayGoodhart's Law in the Real World
How measurable proxies capture judgment.
- EssayThe Perverse Incentives Hiding in Your KPIs
Cognitive shortcuts turned into scorecards.
- EssayAI Agents Inherit Your Incentives
How this element propagates into automated systems.
- CourseIncentives 101
The free ten-part primer on reading a payoff structure.
- ReferenceThe Periodic Table of Human Behavior
The full 1,267-element map this page belongs to.
Questions about Gresham's Law
- What is Gresham's Law?
- Gresham's Law is bad money drives out good when both are legally equivalent. It sits in the Cognition dimension (COG) of the Human Behavior Taxonomy™ as element HBT-COG-0349, within the Economics family. The core principle: bad money drives out good when both are legally equivalent. In incentive terms, it matters because it changes the payoff people perceive before they choose — which means it can be designed for, or exploited.
- What is an example of Gresham's Law?
- Incentives can reward cheap signals over real value. The Incentives Lab catalogs everyday, organizational, and historical instances of this element on its Human Behavior Taxonomy™ page (HBT-COG-0349).
- How is Gresham's Law exploited?
- Incentives can reward cheap signals over real value.
- How do you design around Gresham's Law?
- Design quality signals that are costly to fake.
- Which behavioral dimension does Gresham's Law belong to?
- Gresham's Law is classified in the Cognition dimension (COG) of the Human Behavior Taxonomy™, family "Economics", class "Mental Model". Its permanent identifier is HBT-COG-0349 and its evidence grade is B.