Pareto’s Principle

PARETO PRINCIPLE

The world is not fair. It is extremely unequal. Some people get everything and others nothing. You know what the craziest part about this is?

This inequality is mathematical.

As absurd as this may sound, there is a phenomenon, rather “principle” to describe this, The Pareto Principle.

If I change my opening statement to, 20% of the people get 80% of everything and the others only 20% of everything this statement becomes a perfect example of Pareto’s Principle.

It may be clear already but the Pareto principle basically states that, for many events, roughly 80% of the effects come from 20% of the causes, and hence is also called the 80/20 rule.

I realize that so far this may be ambiguous. So let’s explain this the classical way, with examples!

Vilfredo Pareto

An economist (quite obviously the guy who demonstrated this principle) originally noted this effect in his garden. With peapods. Math doesn’t always have to be nerdy and theoretical. So moving on, he found that 80% of the peas were inside only 20% of the peas. Now when he probably told his fellow economists/ mathematicians I am sure he faced a lot of criticism and was openly ridiculed. Actually, that is probably an understatement. A guy who wants to prove a mathematical law by showing it practically? What an idiot! Till date, we still have to write down stupid proofs for quite obvious theorems because the examiners can’t see it in the diagram. I have even had to prove that every natural number is even or odd…

But nonetheless, that was the first actual example of the Pareto principle. Afterward when he realized that his “peapod example” wasn’t enough he moved on to more material things.

He showed that 20% of the people owned 80% of the land in Italy (yes the guy was Italian. A mathematician who isn’t Greek? What a minority!). People started to believe him.

The principle still stayed as an underappreciated one. But this all was back in 1896. But as time passed and more data became to be analyzed, the principle became more important and evident.

Income disparities

The most important application of this law is in income disparities. Till date whenever income surveys are conducted, people get all fussed up and seemingly shocked by the difference. In accordance with the Pareto Principle, the richest 20% of the world have about 82.7% of the world’s income (source: 1992 United Nations Development Program report)

Quite obviously figures like this come as a surprise. But on closer inspection, it is just math. It’s the Pareto Principle. So the next time somebody is criticizing this difference just tell them it’s math and tell them to read this article on our website. We definitely don’t self-advertise.

The beauty of math is there are no exceptions. This also holds true for the Pareto principle. Every large set of data having a comparison between two things ‘x’ and ‘y’ will show that 20% of x is directly linked to 80% of y.

20% of software bugs are responsible for 80% of crashes, glitches, and malfunction.
20% of hazards cause 80% of injuries and accidents.
20% of the people win about 80% of the awards.
20% of patients use up 80% of medical resources.
20% of criminals commit 80% of crimes.

Need more examples?

In fact, if you read my article on Zipf’s Law, you would know the distribution of words in the language

As the image shows 20% of words account for about 80% of the word usage. So if you see closely, quite logically Zipf’s law is in part responsible for Pareto’ Principle. Math is interlinked. That is what makes it so easy and hard at the same time.

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