An explanation of Pareto's Principle

Keywords: Pareto’s Principle, 80/20 rule, Distribution of Outcomes, Applications

A while ago (more like 4 years ago) I discovered Pareto’s principle - also known as the 80/20 rule - which states that’s 80% of outputs result from 20% of the inputs. Less abstractly, this means that 20% of the input to anything, such as time or effort, will lead to 80% of the actual outputs. For example, only 20% of the features on Microsoft Word will actually be used by 80% of the users whereas the remaining 80% of the features will be used by 20% of the users.

Pareto’s distribution is stunningly applicable. 80% of the crimes are commited by 20% of registered criminals, and 80% of a business’s wealth comes from only 20% of the clients. 20% of the apps on your phone likely are used 80% of the time. This distribution does not need to be exactly 80/20; in some cases it can even go down to 95/5 or even 99/1 (e.g. distribution of wealth across population).

So, how can we use Pareto’s principle in our daily lives? Internalizing the exponential nature in our lives is probably the best way to implement it. If we want a 90 on a test, we’ll only need to put in about half of the effort and time studying compared to getting a 97+. The same goes for standardizing testing; scores are gradually harder to get at the top. Keeping in mind the 80/20 rule can help us decide when the extra mile is excessive or essential.

So now we’ve gone over the how and what - only the why remains. Any ideas on why our world and outcomes are distributed this way? My guess is that the underlying reason of the 80/20 rule is disparity and inequity - one group having much more extreme outliers that overpower all others. The world is moving at an exponential rate; the most successful stocks (which are extremes in themselves) almost always follow exponential curves as compared to linear ascents. Moore’s law literally forecasts that the number of transistors on a microchip double every 2 years; it’s no secret that we also think the world is constantly growing faster than it ever has before. In short, Pareto’s principle seems to be very common when disparity or a gap grows uncontrollably. In our world, that’s not too uncommon.