Pareto principle
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The misnamed Pareto principle (also known as the 80-20 rule, the law of the vital few and the principle of factor sparsity) states that for many phenomena 80% of consequences stem from 20% of the causes. The idea has rule-of-thumb application in many places, but it's also commonly and unthinkingly misused.
The principle was suggested by management thinker Joseph M. Juran. It was named after the Italian economist Vilfredo Pareto, who observed that 80% of property in Italy was owned by 20% of the Italian population. Since J. M. Juran adopted the idea, it might better be called "Juran's assumption". That assumption is that most of the results in any situation are determined by a small number of causes. That idea is often applied to data such as sales figures: "20% of clients are responsible for 80% of sales volume." This is testable, it's likely to be roughly right, and it is helpful in your future decision making.
It is important to note that many people misconstrue the principle (because of the coincidence that 80+20=100): it could just as well read that 80% of the consequences stem from 10% of the causes. Many people would reject such an "80-10" rule, but it is mathematically meaningful nevertheless.
Some hold that the principle is recursive, and may be applied to the top 20% of causes; thus there would be a "64-4" rule, and a "51.8-0.8" rule, and so on.
A clear misuse of "Juran's assumption" is this example: "20% of individuals in an organization perform 80% of the work."
A less clear misuse is this common example: "20% of our advertising creates 80% of our increased sales." That may or may not be true; in either case it's not helpful.
This is a special case of the wider phenomenon of Pareto distributions.
The Pareto principle is unrelated to Pareto efficiency, which really was introduced by Vilfredo Pareto.
See also
External resources
- Wealth Condensation in Pareto Macro-Economies (http://www.ma.hw.ac.uk/~des/HWM00-26.pdf)
- "The 80/20 Principle: The Secret to Success by Achieving More with Less" - a book on the 80/20 Law (http://www.amazon.com/exec/obidos/tg/detail/-/0385491743/qid=1104446873/sr=1-2/ref=sr_1_2/103-2077475-5674230?v=glance&s=books)
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