劣币驱逐良币，电影院现象及其他

Bad Money Drives Out Good: The Cinema Effect and Other Cases

> By Colin Huang · 2016-08-16 · [Original link](https://mp.weixin.qq.com/s/k2BSaLVoGcisQ4R1hofplw) (Chinese)
> Our translation from the Chinese original.

I haven't written on my public account for a long time. Part of the reason is that I wanted to write on this topic but my thoughts were a jumble and I didn't know how to write it. A few days ago, chatting idly after a meal with a good friend, we touched on a few points, and I feel I sort of understand it now, so I'm hurrying to write it down.

1. Bad money driving out good, seen from a neutral standpoint

First, bad money and good money are neutral concepts. The phenomenon of bad money driving out good, first discovered by the British Chancellor of the Exchequer Gresham [Translator's note: so in the original, 英国财政大臣格雷欣; Thomas Gresham was a financier and royal agent to the Tudor crown, not Chancellor of the Exchequer], is this: when two kinds of legal tender with different gold content appear on the market, and the money supply is ample, people will tend to keep the money with high gold content at home as a store, and spend the money with low gold content first. This phenomenon is also called the Gresham new phenomenon [Translator's note: the original writes 格雷欣新现象; the 新, "new", appears to be a slip, and "Gresham phenomenon" (Gresham's law) is meant]. This phenomenon is actually quite easy to understand and fits human nature. Just as in the late Republic of China period, the state desperately issued gold yuan certificates (paper money) to replace silver dollars. At that point everyone naturally spent the paper money first. For the mint, gold yuan certificates were low-cost and could be printed at will, which was to its advantage, while at the same time this was to the disadvantage of ordinary people: it was bad money. Naturally, everyone voted with their feet, and naturally "bad money" flooded the market and good money rose in price. This was the individual behavior of the public each acting out of self-protection; if this individual behavior couldn't be united, then the mint, whose single force was stronger, would win, and through printing gold yuan certificates most people still had part of their personal wealth plundered.

So is bad money driving out good something everyone wants to stop? Actually not necessarily. First, the mint wants to issue bad money; second, the flood of bad money is pushed by every member of the public. When people say "bad money driving out good" is bad, part of the reason is that they hope others will give them good money while they themselves get rid of the bad money first. This selfishness is understandable, but the result is that ordinary people as a whole lose out, and each individual who wants to protect himself can't do so either. If people don't unite, they can't form enough force to counter the coercive power that decrees bad money and good money have the same face value.

What this phenomenon describes from one side is the phenomenon that selfish, disunited individuals can't resist the coercive power of the administrator; from another angle, it also describes a phenomenon of redistributing wealth and lowering the cost of public services by using the force of individual selfishness.

2. The cinema phenomenon

Another phenomenon is the cinema phenomenon, similar to "bad money driving out good" but different. It describes a phenomenon of collective self-harm that may appear in a group of selfish individuals with no organization and lacking external coercive power. That is, in a cinema, if the people in the front rows stand up, then the people in the back rows will stand up too, and as a result what could have been the pleasant thing of everyone watching seated becomes the hard thing of everyone watching standing.

The cinema phenomenon, as I see it, is more worth everyone's study and response. Because it is a phenomenon of a group harming itself, nobody truly benefits, unlike "bad money driving out good", which is actually one force defeating another force and pushing the spread of bad money. At present, what people usually quote more is "bad money driving out good", but most of the time I think what is actually meant is the "cinema phenomenon".

3. One piece of shit spoils a whole pot of soup

The people in the cinema who stand up first are like a piece of shit dropped into the soup: very soon the whole pot of soup can only be poured out. What's pointed out here is a question of proportion. Soup actually has the ability to purify itself, like sewage from rivers flowing into the sea: if the proportion is very low, it's actually ok. But once this proportion rises to a critical point, the original ability to purify collapses. Often we say a bad phenomenon is not mainstream so there's no problem, and that it also exists in another healthy system, as if there were no difference between the two; this is a very dangerous idea. You have to know that the critical point for the size of the piece of shit that spoils a pot of soup is often very low, maybe the difference between one percent and five percent. At one percent it can be purified; at five percent it can only all be thrown out. For example, if in a group of people the proportion of cheats is only 1%, then presuming the group innocent, this society can run efficiently and healthily; but it may be that when this proportion rises to 5% or 8%, continuing to presume innocence will push the others toward the cheats' side, and in that case this society can only presume guilt, and then it's a difference in nature. The efficiency with which the cultures of the two systems run will change fundamentally. But be very careful: this qualitative change caused by quantitative change often doesn't happen at 50%; it's often at a much lower value. In business, we know that Amazon effectively came to decide book pricing, and so upended book retailing, when its share of books was far below 50%. Everyone carries cancer cells, and normally it's fine, but if their replication and spread go beyond [Translator's note: the original writes 起过, apparently a slip for 超过, "exceed"] a certain value, you have cancer, and for cancer to take a person's life it needs nowhere near 50% spread.

So when we talk about looking at the mainstream, or compare two systems that aren't 100% perfect, we must pay attention to the difference between 1% and 5%, and must never think that because both are a small part they're the same in nature. A lot of the time, the qualitative change lies right between this 1% and 5%.

4. Changing a group's self-harm takes enormous energy

If a group has a hundred people, 8 of whom are cheats, and systematic research shows that the presumption-of-innocence system only works when the proportion is below 3%, then to convert 5 of the 8 people, what it takes is certainly not the effort of 5 people; it usually takes 10 times the effort, that is, 50 people working at the same time to convert 5 people. One example is New York cleaning up graffiti in public places. It's said that Grand Central station in Manhattan, New York, once had graffiti on every one, and to clean this up the mayor spent a great deal of effort: every day they went to paint over a wall; if others sprayed a little, he still painted over all of it, over and over for many, many days in a row, and only then did the graffiti gradually decrease and then disappear. It's said that Singapore's cleanup of spitting in public was similar: it paid a price many, many times that of the wrongdoers before turning around the "general habit" and forming a system that runs healthily.

5. Channels have value; the expensive ones sell well

One way to change public habits is a direct, wide-ranging crackdown; another is to use channels. In business there's a phenomenon worth discussing, which is that sometimes things sell better when they're more expensive. For example, a product like an air conditioner needs someone to install it, and also needs someone to recommend it. It may be that internet direct sales like Xiaomi's, pushing the price to the "lowest", is not as good as "Gree" giving installers and channels enough profit. Although it looks like the channel approach raises the price of goods, in practice, channel and service costs may be the most economical and healthy way of maintaining a certain public understanding. These channel and service costs are necessary; they put the price of maintaining a certain order out in the open, while a system that ignores this price may head toward "bad money driving out good". Phenomena like this, which violate the principle of the price supply-and-demand curve taught in economics textbooks, are actually very, very numerous. Charlie Munger [Translator's note: the original writes 查理.芝格, a miswritten form of 查理·芒格, Charlie Munger] said many times in his book that we can also easily find such examples in consumer goods, commercial software, hardware and other fields; this phenomenon of the expensive selling better may even be the mainstream in quite a few fields.

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