Bad Money Drives Out Good, the Movie Theater Phenomenon, and More

I haven't written on this public account for a while. Part of the reason is that I wanted to write about this topic, but my thoughts were scattered, and I didn't know how to start. A few days ago, I had a casual chat with a good friend after dinner, and we talked about a few points that helped me clarify things. So I quickly wrote it down.

1. Bad Money Driving Out Good from a Neutral Standpoint

First of all, "bad money" and "good money" are neutral concepts. The phenomenon of bad money driving out good, first discovered by British Chancellor Thomas Gresham, is: when there are two kinds of legal tender with different gold content in the market, and the money supply is sufficient, people will tend to keep the money with higher gold content at home for collection and spend the money with lower gold content first. This phenomenon is also known as Gresham's law. This phenomenon is actually quite easy to understand and conforms to human nature, just like in the late Republic of China, the government desperately issued gold yuan notes (paper money) to replace silver dollars. At this time, everyone naturally spent the paper money first. For the mint, gold yuan notes had low costs and could be printed at will, which was beneficial to them, but at the same time, it was detrimental to the common people. This is bad money. Naturally, everyone voted with their feet, and naturally, "bad money" flooded the market, and good money became more expensive. This is individual behavior driven by everyone's self-preservation. If this individual behavior cannot be united, then the mint, with its stronger single power, will win. By printing gold yuan notes, most people were still plundered of part of their personal wealth.

So, is bad money driving out good something everyone wants to prevent? Not necessarily. First, the mint wants to issue bad money. Second, the flooding of bad money is driven by every individual. The reason why everyone says "bad money driving out good" is bad is partly because they hope that others will give them good money, while they want to use the bad money first. This selfishness is understandable, but the result is that all the common people as a whole suffer losses. Each individual wants to protect themselves, but they can't protect themselves. If everyone is not united, they cannot form enough power to resist the mandatory force that designates bad money and good money with the same face value.

This phenomenon describes from one side the phenomenon that selfish and disunited individuals cannot resist the mandatory power of managers. From another perspective, it also describes a phenomenon of using the power of individual selfishness to redistribute wealth and reduce the cost of public services.

2. The Movie Theater Phenomenon

Another phenomenon is the movie theater phenomenon, which is similar to "bad money driving out good" but also different. It describes a collective self-harm phenomenon that may occur in a group of selfish individuals without organization and lacking external mandatory power. That is, if people in the front row of a movie theater stand up, then people in the back row will also stand up. As a result, what was originally a good thing for everyone to watch while sitting becomes a tiring thing for everyone to watch while standing.

In my opinion, the movie theater phenomenon is more worthy of everyone's research and response. Because it is a phenomenon of collective self-harm, no one really benefits, unlike "bad money driving out good," which is actually one force defeating another force and promoting the popularization of bad money. Currently, "bad money driving out good" is cited more often, but most of the time I think it actually refers to the "movie theater phenomenon."

3. One Piece of Shit Spoils the Whole Pot of Soup

The people who stand up first in the movie theater are like a piece of shit falling into a pot of soup. Soon, the whole pot of soup can only be thrown away. Here, a proportion problem is pointed out. Soup actually has a self-purification ability. Like sewage from rivers flowing into the sea, if the proportion is very low, it's actually okay. But as long as this proportion rises to a critical point, the original purification ability collapses. Many times we say that a bad phenomenon is not mainstream, so there is no problem, and it also exists in another benign system, as if there is no difference between the two sides. This is a very dangerous idea. You must know that the critical point of the size of a piece of shit that spoils a pot of soup is often very low, perhaps the difference between one percent and five percent. One percent can be purified, but five percent can only be thrown away entirely. For example, if the proportion of liars in a group of people is only 1%, then the society can operate efficiently and benignly with the presumption of innocence. But if this proportion rises to 5% or 8%, the presumption of innocence will force others to the side of the liars. In this case, the society can only make a presumption of guilt. This is a difference in nature. The cultural operating efficiency of the two systems will undergo fundamental changes. But be careful that this qualitative change caused by quantitative change often does not happen at 50%, but often at a much lower value. In business, we know that Amazon essentially determined the pricing of books and thus subverted the book retail industry when its book share was far less than 50%. Everyone has cancer cells in their body, which is normally okay, but if their replication and spread exceed a certain value, you get cancer, and cancer doesn't need to spread to 50% to take a person's life.

So when we talk about looking at the mainstream or comparing two systems that are not 100% perfect, we must pay attention to the difference between 1% and 5%. Don’t think that they are both small parts and of the same nature. Many times, the qualitative change is between this 1% and 5%.

4. Changing Collective Self-Harm Requires Huge Energy

If a group has 100 people and 8 of them are liars, and research shows that a presumption of innocence system only works when the proportion is below 3%, then in order to transform 5 of the 8 people, it definitely doesn't take the effort of 5 people. It usually takes 10 times the effort, that is, 50 people working together can transform 5 people. One example is New York’s cleanup of graffiti in public places. It is said that every station in New York’s Manhattan Central Terminal was covered in graffiti. To rectify this, the mayor spent a lot of effort, going every day to brush one wall. If someone painted a little, he would brush it all, repeatedly for many, many days, and the graffiti gradually decreased and then disappeared. It is said that Singapore’s management of spitting was similar, paying many, many times the cost of the destroyers to reverse the “trend” and form a benign operating system.

5. Channels Have Value, Expensive Things Sell Better

One way to change public trends is to directly carry out large-scale rectification. Another way is to use channels. In business, there is a phenomenon worth discussing: sometimes things sell better when they are more expensive. For example, for products like air conditioners, someone needs to install them, and someone needs to recommend them. It is possible that internet direct sales similar to Xiaomi, which pushes prices to the "lowest," are not as good as Gree giving enough profit to installers and channels. Although the channel’s approach seems to raise the price of goods, in practice, channel and service costs are perhaps the most economical and benign way to maintain some kind of public perception. This kind of channel and service cost is necessary. It makes the cost of maintaining a certain order apparent, while ignoring such a cost system may lead to "bad money driving out good." This phenomenon, which violates the price-supply-demand curve principle described in economics textbooks, is actually very, very common. Charlie Munger has repeatedly said in his books that we can also easily find such examples in consumer goods, commercial software, hardware, and other fields. This phenomenon of expensive things selling better may even be the mainstream in some areas.