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| :''The term "Pareto principle" can also refer to [[Pareto efficiency]].''
| | How To Decide On Legal Lawyers Los Angeles<br><br> |
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| The '''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 events, roughly 80% of the effects come from 20% of the causes.<ref name="NYT">{{citation|title=Joseph Juran, 103, Pioneer in Quality Control, Dies|journal=[[New York Times]]|date=March 3, 2008|url=http://www.nytimes.com/2008/03/03/business/03juran.html|last=Bunkley|first=Nick|postscript=<!--none-->}}</ref><ref name=8020pre/> Business-[[management consultant]] [[Joseph M. Juran]] suggested the principle and named it after Italian [[economist]] [[Vilfredo Pareto]], who observed in 1906 that 80% of the land in Italy was owned by 20% of the population; Pareto developed the principle by observing that 20% of the pea pods in his garden contained 80% of the peas.<ref name="8020pre">{{citation|title=What is 80/20 Rule, Pareto’s Law, Pareto Principle|url=http://www.80-20presentationrule.com/whatisrule.html|postscript=<!--none-->}}</ref>
| | After scoring with just over a moment remaining in the second period to put the Wild up three-one, Belanger notched his next goal of the night with two:25 remaining in the 3rd to give the variation in a 4-three Wild victory above the Kings at Staples Center.<br><br>Ventura County is properly known for all the beautiful sandy beaches, great sights, and a amazing perception of local community. What far better area to live and spend in than Ventura Genuine Estate. It will only take you a couple of minutes to get to both Link Schwartz or Santa Barbara. Ventura County is the gateway to Channel Islands National Park.<br><br>Bruce fashioned many bands earlier obtaining the audio he was searching employed for and eventually fashioned The E Street Band, which incorporated Clarence Clemmons, David Sancious, Danny Federici, Gary Tallent, and Vini Lopez.<br><br>There is a whole lot of background in Ventura County. There is the Ronald Reagan Presidential Library and Museum, The Fillmore and Western historic railway, San Buenaventura Mission, and Union Oil Museum.<br><br>Take a moment to look at the new Avatar clip revealed at the Scream Awards 2010. Every person will see this in a couple of times when the display is broadcasted on Spike, but you can see it now due to the fact of the leak!<br><br>Griffin picked up his fifth foul midway by means of the fourth quarter, but returned shortly to near out the recreation. He received double-double variety 52 with twenty factors, 14 rebounds and also five assists.<br><br>First, you understand the game. You operate with coaches. You create the fundamental expertise Link Schwartz by working towards every working day, working day right after day, for many years. No one would count on to be hired by the Lakers with no experience and then learn to enjoy basketball "on the job", would they? That appears ridiculous, doesn't it?<br><br>[http://searchengineland.com/author/barry-schwartz Link Schwartz] San Antonio did it in dominating trend closing the regular year with a 31-five mark and followed that with a fifteen-2 postseason operate that provided twelve [http://mondediplo.com/spip.php?page=recherche&recherche=straight+wins straight wins].<br><br>Kids and adults would surely enjoy this display just since it is a quite very good 1. The tale is abundant and eventful, with the musical rendition really memorable. Just take your entire household to Link Schwartz enjoy the functionality. It is genuinely going to be a night time of leisure for all of you. |
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| It is a common [[rule of thumb]] in business; e.g., "80% of your sales come from 20% of your clients". Mathematically, the 80-20 rule is roughly followed by a [[power law]] distribution (also known as a [[Pareto distribution]]) for a particular set of parameters, and many natural phenomena have been shown empirically to exhibit such a distribution.<ref>{{cite web|last=Newman|first=MEJ|title=Power laws, Pareto Distributions, and Zipf's law|url=http://arxiv.org/PS_cache/cond-mat/pdf/0412/0412004v3.pdf|accessdate=10 April 2011|page=11}}</ref>
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| The Pareto principle is only tangentially related to [[Pareto efficiency]]. Pareto developed both concepts in the context of the [[distribution of income]] and wealth among the population.
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| == In economics ==
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| The original observation was in connection with population and wealth. Pareto noticed that 80% of Italy's land was owned by 20% of the population.<ref>{{citation|title=''Translation of'' Manuale di economia politica ("Manual of political economy") |first1=Vilfredo|last1=Pareto|first2=Alfred N.|last2=Page|publisher=A.M. Kelley|year=1971|isbn=978-0-678-00881-2|postscript=<!--none-->}}</ref> He then carried out surveys on a variety of other countries and found to his surprise that a similar distribution applied.
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| Due to the scale-invariant nature of the [[power law]] relationship, the relationship applies also to subsets of the income range. Even if we take the ten wealthiest individuals in the world, we see that the top three ([[Carlos Slim Helú]], [[Warren Buffett]], and [[Bill Gates]]) own as much as the next seven put together.<ref>{{citation|url=http://www.thisismoney.co.uk/news/article.html?in_article_id=418243&in_page_id=3|title=The Forbes top 100 billionaire rich-list|publisher=This is Money|postscript=<!--none-->}}</ref>, thus in this case the rule does NOT apply since the top 30% (of the ten wealthiest individuals in the world) own about 50% of the wealth (of the ten wealthiest individuals in the world), and not 80% of it, as would be expected by the Pareto principle.
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| A chart that gave the inequality a very visible and comprehensible form, the so-called 'champagne glass' effect,<ref>{{citation|first=Xabier|last=Gorostiaga|title=World has become a 'champagne glass' globalisation will fill it fuller for a wealthy few|journal=National Catholic Reporter|date=January 27, 1995|postscript=<!--none-->}}</ref> was contained in the 1992 United Nations Development Program Report, which showed the distribution of global income to be very uneven, with the richest 20% of the world's population controlling 82.7% of the world's income.<ref>{{citation|author=United Nations Development Program|title=1992 Human Development Report|year=1992|location=New York|publisher=Oxford University Press|postscript=<!--none-->}}</ref>
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| {| class="wikitable"
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| |+ Distribution of world GDP, 1989<ref name="1992 Human Development Report, Chapter 3">{{citation|url=http://hdr.undp.org/en/reports/global/hdr1992/chapters/|title=Human Development Report 1992, Chapter 3|accessdate=2007-07-08|postscript=<!--none-->}}</ref>
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| ! Quintile of population
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| ! Income
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| | Richest 20%
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| | 82.70%
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| |-
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| | Second 20%
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| | 11.75%
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| |-
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| | Third 20%
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| | 2.30%
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| |-
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| | Fourth 20%
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| | 1.85%
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| |-
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| | Poorest 20%
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| | 1.40%
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| |}
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| == In business ==
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| The distribution is claimed to appear in several different aspects relevant to entrepreneurs and business managers. For example:
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| * 80% of a company's profits come from 20% of its customers
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| * 80% of a company's complaints come from 20% of its customers
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| * 80% of a company's profits come from 20% of the time its staff spend
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| * 80% of a company's sales come from 20% of its products
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| * 80% of a company's sales are made by 20% of its sales staff<ref>''Living Life the 80/20 Way'' by Richard Koch</ref>
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| Therefore, many businesses have an easy access to dramatic improvements in profitability by focusing on the most effective areas and eliminating, ignoring, automating, delegating or retraining the rest, as appropriate.
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| == In software ==
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| In [[computer science]] and engineering control theory such as for electromechanical energy converters, the Pareto principle can be applied to [[optimization (computer science)|optimization]] efforts.<ref>{{citation|first1=M.|last1=Gen|first2=R.|last2=Cheng|title=Genetic Algorithms and Engineering Optimization|location=New York|publisher=Wiley|year=2002|postscript=<!--none-->}}</ref> For example, [[Microsoft]] noted that by fixing the top 20% most reported bugs, 80% of the errors and crashes would be eliminated.<ref>{{citation|url=http://www.crn.com/news/security/18821726/microsofts-ceo-80-20-rule-applies-to-bugs-not-just-features.htm|title=Microsoft's CEO: 80–20 Rule Applies To Bugs, Not Just Features|first=Paula|last=Rooney|date=October 3, 2002|publisher=ChannelWeb|postscript=<!--none-->}}</ref>
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| In [[load testing]] it is common practice to estimate the 80% of the traffic occurs during 20% of the time.
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| In [[Software engineering|software engineering]], Lowell Arthur stated a principle, ''"20 percent of the code has 80 percent of the errors. Find them, fix them!"'' <ref>Pressman, Roger S (2010). Software Engineering: A Practitioner's Approach (7th ed.). Boston, Mass: McGraw-Hill. ISBN 978–0–07–337597–7.</ref>
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| == Occupational health and safety ==
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| The Pareto principle is used in [[occupational health and safety]] to underline the importance of hazard prioritization. Assuming 20% of the hazards will account for 80% of the injuries and by categorizing hazards, safety professionals can target those 20% of the hazards that cause 80% of the injuries or accidents. Alternatively, if hazards are addressed in random order, then a safety professional is more likely to fix one of the 80% of hazards which account for some fraction of the remaining 20% of injuries.<ref>{{cite book|last=Woodcock|first=Kathryn|title=Safety Evaluation Techniques|year=2010|publisher=Ryerson University|location=Toronto, ON|pages=86|url=http://www.ryerson.ca/woodcock/}}</ref>
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| Aside from ensuring efficient accident prevention practices, the Pareto principle also ensures hazards are addressed in an economical order as the technique ensures the resources used are best used to prevent the most accidents.<ref name=USCG001>{{cite web|title=Introduction to Risk-based Decision. Making|url=http://www.uscg.mil/hq/cg5/cg5211/docs/RBDM_Files/PDF/RBDM_Guidelines/Volume%202/Volume%202-Chapter%206.pdf|work=USCG Safety Program|publisher=United States Coast Guard|accessdate=14 January 2012}}</ref>
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| == Other applications ==
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| In the systems science discipline, [[Joshua M. Epstein|Epstein]] and [[Robert Axtell|Axtell]] created an [[Agent-based social simulation|agent-based simulation]] model called [[SugarScape]], from a [[Decentralised system|decentralized modeling]] approach, based on individual behavior rules defined for each agent in the economy. Wealth distribution and Pareto's 80/20 principle became emergent in their results, which suggests the principle is a natural phenomenon.<ref>
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| {{Citation
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| | last=Epstein | first=Joshua
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| | last2=Axtell | first2=Robert
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| | year=1996
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| | title=Growing Artificial Societies: Social Science from the Bottom-Up
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| | publisher=[[MIT Press]]
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| | page=208
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| | isbn=0-262-55025-3
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| | url=http://books.google.com/?id=xXvelSs2caQC
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| | postscript=<!--none-->
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| }}
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| </ref>
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| The Pareto principle has many applications in quality control.{{Citation needed|date=January 2008}} It is the basis for the [[Pareto chart]], one of the key tools used in [[total quality management|total quality control]] and [[six sigma]]. The Pareto principle serves as a baseline for [[time management#abc analysis|ABC-analysis]] and XYZ-analysis, widely used in [[logistics]] and procurement for the purpose of optimizing stock of goods, as well as costs of keeping and replenishing that stock.<ref>{{harvtxt|Rushton|Oxley|Croucher|2000}}, pp. 107–108.</ref>
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| The Pareto principle was a prominent part of the 2007 ''[[The 4-Hour Workweek]]'' by [[Timothy Ferriss|Tim Ferriss]]. Ferriss recommended focusing one's attention on those 20% of customers who contribute 80% of the income. More notably, he also recommends 'firing' – refusing to do business with – those 20% of customers who take up the majority of one's time and cause the most trouble.<ref>{{citation|year=2007|authorlink=Timothy Ferriss|last=Ferris|first=Tim|year=2006|title=[[The 4-Hour Workweek]]|publisher=Crown Publishing|postscript=<!--none-->}}</ref>
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| In health care in the United States, 20% of patients have been found to use 80% of health care resources.<ref>[http://www.projo.com/opinion/contributors/content/CT_weinberg27_07-27-09_HQF0P1E_v15.3f89889.html Myrl Weinberg: In health-care reform, the 20-80 solution | Contributors | projo.com | The Providence Journal<!-- Bot generated title -->]</ref>
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| Several criminology studies have found 80% of crimes are committed by 20% of criminals.{{Citation needed|date=August 2013}}This statistic is used to support both [[stop-and-frisk]] policies and [[broken windows]] policing, as catching those criminals committing minor crimes will likely net many criminals wanted for (or who would normally commit) larger ones.
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| Drawing on several sources including the study of rats in crowded environments and communist management of American POWs in the Korean War, the writer Colin Wilson ascertained that 20% of humans are "power men", suited to governing (and, often, exploiting) the other 80% of humanity. {{Citation needed|date=January 2013}}
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| In the financial services industry, this concept is known as [[profit risk]], where 20% or fewer of a company's customers are generating positive income, while 80% or more are costing the company money.<ref>[http://www.dmacorporation.com/dmarecognized/MortgagePress.pdf Profit Risk<!-- Bot generated title -->]</ref>
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| == Mathematical notes ==
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| The idea has rule of thumb application in many places, but it is commonly misused. For example, it is a misuse to state a solution to a problem "fits the 80–20 rule" just because it fits 80% of the cases; it must also be that the solution requires only 20% of the resources that would be needed to solve all cases. Additionally, it is a misuse of the 80–20 rule to interpret data with a small number of categories or observations.
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| This is a special case of the wider phenomenon of [[Pareto distribution]]s. If the [[Pareto index]] '''α''', which is one of the parameters characterizing a Pareto distribution, is chosen as '''α''' = log<sub>4</sub>5 ≈ 1.16, then one has 80% of effects coming from 20% of causes.
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| It follows that one also has 80% of that top 80% of effects coming from 20% of that top 20% of causes, and so on. Eighty percent of 80% is 64%; 20% of 20% is 4%, so this implies a "64-4" law; and similarly implies a "51.2-0.8" law. Similarly for the bottom 80% of causes and bottom 20% of effects, the bottom 80% of the bottom 80% only cause 20% of the remaining 20%. This is broadly in line with the world population/wealth table above, where the bottom 60% of the people own 5.5% of the wealth.
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| The 64-4 correlation also implies a 32% 'fair' area between the 4% and 64%, where the lower 80% of the top 20% (16%) and upper 20% of the bottom 80% (also 16%) relates to the corresponding lower top and upper bottom of effects (32%). This is also broadly in line with the world population table above, where the second 20% control 12% of the wealth, and the bottom of the top 20% (presumably) control 16% of the wealth.
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| The term 80–20 is only a shorthand for the general principle at work. In individual cases, the distribution could just as well be, say, 80–10 or 80–30. There is no need for the two numbers to add up to the number 100, as they are measures of different things, e.g., 'number of customers' vs 'amount spent'). However, each case in which they do not add up to 100%, is equivalent to one in which they do; for example, as noted above, the "64-4 law" (in which the two numbers do not add up to 100%) is equivalent to the "80–20 law" (in which they do add up to 100%). Thus, specifying two percentages independently does not lead to a broader class of distributions than what one gets by specifying the larger one and letting the smaller one be its complement relative to 100%. Thus, there is only one degree of freedom in the choice of that parameter.
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| Adding up to 100 leads to a nice symmetry. For example, if 80% of effects come from the top 20% of sources, then the remaining 20% of effects come from the lower 80% of sources. This is called the "joint ratio", and can be used to measure the degree of imbalance: a joint ratio of 96:4 is very imbalanced, 80:20 is significantly imbalanced ([[Gini index]]: 60%), 70:30 is moderately imbalanced (Gini index: 40%), and 55:45 is just slightly imbalanced.
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| The Pareto principle is an illustration of a "[[power law]]" relationship, which also occurs in phenomena such as [[brush fire]]s and earthquakes.<ref>{{Citation
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| | first=Per
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| | last=Bak
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| | authorlink=Per Bak
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| | year=1999
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| | title=How Nature Works: the science of self-organized criticality
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| | page=89
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| | publisher=Springer
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| | isbn= 0-387-94791-4 }}</ref>
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| Because it is self-similar over a wide range of magnitudes, it produces outcomes completely different from [[Gaussian distribution]] phenomena. This fact explains the frequent breakdowns of sophisticated financial instruments, which are modeled on the assumption that a Gaussian relationship is appropriate to, for example, stock price movements.<ref>{{Citation
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| | first=Nassim |last=Taleb
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| | authorlink=Nassim Taleb
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| | year=2007
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| | title=[[The Black Swan (Taleb book)|The Black Swan]]
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| | pages=229–252, 274–285
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| | postscript=<!--none-->
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| }}</ref>
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| == Equality measures ==
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| === Gini coefficient and Hoover index ===
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| Using the "''A'' : ''B''" notation (for example, 0.8:0.2) and with ''A'' + ''B'' = 1, [[Income inequality metrics|inequality measures]] like the [[Gini index]] (G) ''and'' the [[Hoover index]] (H) can be computed. In this case both are the same.
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| : <math>H=G=\left|2A-1 \right|=\left|1-2B \right| \, </math>
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| : <math>A:B = \left( \tfrac{1+H}{2} \right): \left( \tfrac{1-H}{2} \right)</math>
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| === Theil index ===
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| The [[Theil index]] is an entropy measure used to quantify inequalities. The measure is 0 for 50:50 distributions and reaches 1 at a Pareto distribution of 82:18. Higher inequalities yield Theil indices above 1.<ref>[http://www.poorcity.richcity.org/calculator/?quantiles=82.4,17.6|17.6,82.4 On Line Calculator: Inequality<!-- Bot generated title -->]</ref>
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| : <math>T_T=T_L=T_s = 2 H \, \operatorname{arctanh} \left( H \right).\,</math>
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| == See also ==
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| {{Commons category|Pareto principle}}
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| {{div col|3}}
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| *[[1% rule (Internet culture)]]
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| *[[10/90 gap]]
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| *[[Benford's law]]
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| *[[Diminishing returns]]
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| *[[Elephant flow]]
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| *[[Mathematical economics]]
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| *[[Megadiverse countries]]
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| *[[Ninety-ninety rule]]
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| *[[Pareto distribution]]
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| *[[Pareto priority index]]
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| *[[Parkinson's law]]
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| *[[Principle of least effort]]
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| *[[Profit risk]]
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| *[[Sturgeon's law]]
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| *[[The Long Tail]]
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| *[[Vitality curve]]
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| *[[Wealth condensation]]
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| *[[Zipf's law]]
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| {{div col end}}
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| == References ==
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| {{Reflist|30em}}
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| == Further reading ==
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| *{{Citation |last=Bookstein |first=Abraham |authorlink= |coauthors= |year=1990 |month= |title=Informetric distributions, part I: Unified overview |journal=Journal of the American Society for Information Science |volume=41 |issue= 5|pages=368–375 |doi=10.1002/(SICI)1097-4571(199007)41:5<368::AID-ASI8>3.0.CO;2-C |url= |accessdate= |quote= |postscript=<!--none--> }}
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| *{{Citation |last=Klass |first=O. S. |authorlink= |coauthors=Biham, O.; Levy, M.; Malcai, O.; Soloman, S. |year=2006 |month= |title=The Forbes 400 and the Pareto wealth distribution |journal=Economics Letters |volume=90 |issue=2 |pages=290–295 |doi=10.1016/j.econlet.2005.08.020 |url= |accessdate= |quote= |postscript=<!--none--> }}
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| *{{Citation |title=The 80/20 Principle: The Secret of Achieving More with Less |last=Koch |first=R. |authorlink= |coauthors= |year=2001 |publisher=Nicholas Brealey Publishing |location=London |isbn= |pages= |url=http://www.scribd.com/doc/3664882/The-8020-Principle-The-Secret-to-Success-by-Achieving-More-with-Less |postscript=<!--none--> }}
| |
| *{{Citation |title=Living the 80/20 Way: Work Less, Worry Less, Succeed More, Enjoy More |last=Koch |first=R. |authorlink= |coauthors= |year=2004 |publisher=Nicholas Brealey Publishing |location=London |isbn=1-85788-331-4 |pages= |url= |postscript=<!--none--> }}
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| *{{Citation |last=Reed |first=W. J. |authorlink= |coauthors= |year=2001 |month= |title=The Pareto, Zipf and other power laws |journal=Economics Letters |volume=74 |issue=1 |pages=15–19 |doi=10.1016/S0165-1765(01)00524-9 |url= |accessdate= |quote= |postscript=<!--none--> }}
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| *{{Citation |doi=10.1016/0094-1190(80)90043-1 |last=Rosen |first=K. T. |authorlink= |coauthors=Resnick, M. |year=1980 |month= |title=The size distribution of cities: an examination of the Pareto law and primacy |journal=Journal of Urban Economics |volume=8 |issue= 2|pages=165–186 |id= |url= |accessdate= |quote= |postscript=<!--none--> }}
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| *{{citation |title=The handbook of logistics and distribution management |last1=Rushton |first1=A. |last2=Oxley|first2= J.|last3= Croucher|first3= P. |year=2000 |edition=2nd |publisher=Kogan Page |location=London |isbn=978-0-7494-3365-9 |postscript=<!--none-->}}.
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| == External links ==
| |
| * [http://management.about.com/cs/generalmanagement/a/Pareto081202.htm About.com: Pareto's Principle]
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| * [http://web.archive.org/web/20080528063231/http://www.ma.hw.ac.uk/~des/HWM00-26.pdf Wealth Condensation in Pareto Macro-Economies]
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| [[Category:Statistical laws]]
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| [[Category:Rules of thumb]]
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| [[Category:Tails of probability distributions]]
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| [[Category:Statistical principles]]
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| [[Category:Adages]]
| |
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