Pareto principle - Wikipedia
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The Pareto principle states that for many outcomes, roughly 80% of consequences come from 20% of causes (the "vital few"). ... Other names for this principle are ... Paretoprinciple FromWikipedia,thefreeencyclopedia Jumptonavigation Jumptosearch Statisticalprincipleaboutratioofeffectstocauses Fortheoptimalallocationofresources,seeParetoefficiency. TheParetoprincipleappliestoraisingfunds:20%ofthedonorscontribute80%ofthetotal TheParetoprinciplestatesthatformanyoutcomes,roughly80%ofconsequencescomefrom20%ofcauses(the"vitalfew").[1]Othernamesforthisprinciplearethe80/20rule,thelawofthevitalfew,ortheprincipleoffactorsparsity.[2][3] ManagementconsultantJosephM.Jurandevelopedtheconceptinthecontextofqualitycontrol,andimprovement,namingitafterItalianeconomistVilfredoPareto,whonotedthe80/20connectionwhileattheUniversityofLausannein1896.[4]Inhisfirstwork,Coursd'économiepolitique,Paretoshowedthatapproximately80%ofthelandinItalywasownedby20%ofthepopulation.TheParetoprincipleisonlytangentiallyrelatedtoParetoefficiency. Mathematically,the80/20ruleisroughlydescribedbyapowerlawdistribution(alsoknownasaParetodistribution)foraparticularsetofparameters,andmanynaturalphenomenahavebeenshowntoexhibitsuchadistribution.[5]Itisanadageofbusinessmanagementthat"80%ofsalescomefrom20%ofclients".[6] Contents 1Ineconomics 2Incomputing 3Insports 4Occupationalhealthandsafety 5Otherapplications 6Mathematicalnotes 6.1GinicoefficientandHooverindex 7Seealso 8References 9Furtherreading 10Externallinks Ineconomics[edit] Pareto'sobservationwasinconnectionwithpopulationandwealth.Paretonoticedthatapproximately80%ofItaly'slandwasownedby20%ofthepopulation.[7]Hethencarriedoutsurveysonavarietyofothercountriesandfoundtohissurprisethatasimilardistributionapplied. Achartthatgavetheeffectaveryvisibleandcomprehensibleform,theso-called"champagneglass"effect,[8]wascontainedinthe1992UnitedNationsDevelopmentProgramReport,whichshowedthatdistributionofglobalincomeisveryuneven,withtherichest20%oftheworld'spopulationreceiving82.7%oftheworld'sincome.[9]Amongnations,theGiniindexshowsthatwealthdistributionsvarysubstantiallyaroundthisnorm. DistributionofworldGDP,1989[10] Quintileofpopulation Income Richest20% 82.70% Second20% 11.75% Third20% 2.30% Fourth20% 1.85% Poorest20% 1.40% TheParetoprinciplealsocouldbeseenasapplyingtotaxation.IntheUS,thetop20%ofearnerspaidroughly80–90%ofFederalincometaxesin2000and2006,[11]andagainin2018.[12] Inbusiness,manyexamplesofthe80/20Principlehavebeenvalidated.20percentofproductsusuallyaccountforabout80percentofdollarsalesvalue;sodo20percentofcustomers.20percentofproductsorcustomers[13]usuallyalsoaccountforabout80percentofanorganization'sprofits. Thecausesofwealthowingsomuchtothe"vitalfew"havebeenattributedtodistributionsofmultipletalents[accordingtowhom?],withthefewhavingalltherequiredtalentsandenvironmentsleadingproductioninameritocracy.[citationneeded]Othershavesuggestedthatitmayresultfromchance,AlessandroPluchinoattheItalianUniversityofCataniasuggestingthat"Themaximumsuccessnevercoincideswiththemaximumtalent,andvice-versa,"andthatsuchfactorsaretheresultofchance.[14] Theprinciplealsoholdswithinthetailsofthedistribution.ThephysicistVictorYakovenkooftheUniversityofMaryland,CollegeParkandACSilvaanalyzedincomedatafromtheUSInternalRevenueServicefrom1983to2001,andfoundthattheincomedistributionamongtheupperclass(1–3%ofthepopulation)alsofollowsPareto'sprinciple.[15] AnimportantpropertyofParetodistributionsisthattheyhaveafattail.Intherealworld,thismeansthatthewealthiest1%ofpopulationpossessesasubstantiallylargerportionofthenationalincomeandwealththanwouldbepredictedbyextrapolatingthedistributionofmiddleincomeearners.Accordingly,greaterunderstandingoftheoverallconcentrationofincomeandwealthrequiresincreasedattentionbepaidtowhythedistributionsoftopearnersuniversallyfollowtheParetodistribution.[16] Incomputing[edit] IncomputersciencetheParetoprinciplecanbeappliedtooptimizationefforts.[17]Forexample,Microsoftnotedthatbyfixingthetop20%ofthemost-reportedbugs,80%oftherelatederrorsandcrashesinagivensystemwouldbeeliminated.[18]LowellArthurexpressedthat"20%ofthecodehas80%oftheerrors.Findthem,fixthem!"[19]Itwasalsodiscoveredthatingeneralthe80%ofacertainpieceofsoftwarecanbewrittenin20%ofthetotalallocatedtime.Conversely,thehardest20%ofthecodetakes80%ofthetime.ThisfactorisusuallyapartofCOCOMOestimatingforsoftwarecoding. WordPerfectandothersoftwaredevelopersidentifywhatcustomerswantmostofthetimeandhowtheywanttodoit:the80/20rule(peopleuse20%ofaprogram'sfunctions80%ofthetime).Softwaredevelopersworktomakehigh-usefunctionsassimpleandautomaticandinevitableaspossible.[20] Insports[edit] IthasbeenarguedthattheParetoprincipleappliestosport,whereleadingplayersoftentakethemajorityofwins.Forinstanceinbaseball,theParetoprincipleisreflectedinWinsAboveReplacement(anattempttocombinemultiplestatisticstodetermineaplayer'soverallimportancetoateam)."15%ofalltheplayerslastyearproduced85%ofthetotalwinswiththeother85%oftheplayerscreating15%ofthewins.TheParetoprincipleholdsupprettysoundlywhenitisappliedtobaseball."[21]Ithasbeensuggested(butnottested)thattheprincipleappliestotraining,with20%ofexercisesandhabitshaving80%oftheimpact,suggestingtraineesshouldreducethevarietyoftrainingexercisestofocusonthiseffectiveset.[22] Occupationalhealthandsafety[edit] OccupationalhealthandsafetyprofessionalsusetheParetoprincipletounderlinetheimportanceofhazardprioritization.Assuming20%ofthehazardsaccountfor80%oftheinjuries,andbycategorizinghazards,safetyprofessionalscantargetthose20%ofthehazardsthatcause80%oftheinjuriesoraccidents.Alternatively,ifhazardsareaddressedinrandomorder,asafetyprofessionalismorelikelytofixoneofthe80%ofhazardsthataccountonlyforsomefractionoftheremaining20%ofinjuries.[23] Asidefromensuringefficientaccidentpreventionpractices,theParetoprinciplealsoensureshazardsareaddressedinaneconomicalorder,becausethetechniqueensurestheutilizedresourcesarebestusedtopreventthemostaccidents.[24] Otherapplications[edit] Engineeringandqualitycontrol TheParetoprinciplehasmanyapplicationsinqualitycontrolwhereitwasfirstcreated.[25]ItisthebasisfortheParetochart,oneofthekeytoolsusedintotalqualitycontrolandSixSigmatechniques.TheParetoprincipleservesasabaselineforABC-analysisandXYZ-analysis,widelyusedinlogisticsandprocurementforthepurposeofoptimizingstockofgoods,aswellascostsofkeepingandreplenishingthatstock.[26]Inengineeringcontroltheory,suchasforelectromechanicalenergyconverters,the80/20principleappliestooptimizationefforts.[17] Inthesystemssciencediscipline,JoshuaM.EpsteinandRobertAxtellcreatedanagent-basedsimulationmodelcalledSugarscape,fromadecentralizedmodelingapproach,basedonindividualbehaviorrulesdefinedforeachagentintheeconomy.WealthdistributionandPareto's80/20principleemergedintheirresults,whichsuggeststheprincipleisacollectiveconsequenceoftheseindividualrules.[27] Softwaretesting TheParetoprincipleinthecontextofsoftwaretestingiscommonlyinterpretedas"80%ofallbugscanbefoundin20%ofprogrammodules".Inotherwords,ahalfofthemodulesmaycontainnobugsatall.ApplyingParetoPrincipletoqualitycontrolactivitiesofasoftwarecanhelpreducethetestingtimeandincreasetheefficiencyofthesystem,buttheapplicationoftheprincipleitselfwillrequiregoodanalyticalandlogicalskills. Healthandsocialoutcomes InhealthcareintheUnitedStates,inoneinstanceapproximately20%ofpatientshavebeenfoundtouse80%ofhealthcareresources.[28][29]TheDunedinStudyhasfound80%ofcrimesarecommittedby20%ofcriminals.[30]Thisstatistichasbeenusedtosupportbothstop-and-friskpoliciesandbrokenwindowspolicing,ascatchingthosecriminalscommittingminorcrimeswillsupposedlynetmanycriminalswantedfor(orwhowouldnormallycommit)largerones. Somecasesofsuper-spreadingconformtothe20/80rule,[31]whereapproximately20%ofinfectedindividualsareresponsiblefor80%oftransmissions,althoughsuper-spreadingcanstillbesaidtooccurwhensuper-spreadersaccountforahigherorlowerpercentageoftransmissions.[32]Inepidemicswithsuper-spreading,themajorityofindividualsinfectrelativelyfewsecondarycontacts.The80/20rulehasbeensuggestedtoaccountforalargeproportionoftransmissioneventsduringtheongoingCOVID-19pandemic.[33][34][35] Generaldistributionoperations TheParetoprincipleisoftenreferredtoindistributionoperations,normallycalledthe80/20rule.Indistributionoperationsitiscommontoobservethat80%oftheproductionvolumeconstitute20%oftheSKUs(StockKeepingUnits).Duringfacilitydesign,thisruleoftengovernsthestorageareaandprocessingareaconfigurations. Productlines Manyvideorentalshopsreportedin1988that80%ofrevenuecamefrom20%ofvideotapes.Avideo-chainexecutivediscussedthe"GonewiththeWindsyndrome",however,inwhicheverystorehadtoofferclassicslikeGonewiththeWind,Casablanca,orTheAfricanQueentoappeartohavealargeinventory,evenifcustomersveryrarelyrentedthem.[36] Mathematicalnotes[edit] Thissectionpossiblycontainsoriginalresearch.Pleaseimproveitbyverifyingtheclaimsmadeandaddinginlinecitations.Statementsconsistingonlyoforiginalresearchshouldberemoved.(May2020)(Learnhowandwhentoremovethistemplatemessage) Validapplicationoftherulerequiresdemonstratingnotthatonecanexplainmostofthevarianceorthatsomesmallsetofobservationsareexplainedbyasmallproportionofprocessvariables,butratherthatalargeproportionofprocessvariationisassociatedwithasmallproportionoftheprocessvariables.[3] ThisisaspecialcaseofthewiderphenomenonofParetodistributions.IftheParetoindex α,whichisoneoftheparameterscharacterizingaParetodistribution,ischosenasα = log45 ≈ 1.16,thenonehas80%ofeffectscomingfrom20%ofcauses. Itfollowsthatonealsohas80%ofthattop80%ofeffectscomingfrom20%ofthattop20%ofcauses,andsoon.Eightypercentof80%is64%;20%of20%is4%,sothisimpliesa"64/4"law;andsimilarlyimpliesa"51.2/0.8"law.Similarlyforthebottom80%ofcausesandbottom20%ofeffects,thebottom80%ofthebottom80%onlycause20%oftheremaining20%.Thisisbroadlyinlinewiththeworldpopulation/wealthtableabove,wherethebottom60%ofthepeopleown5.5%ofthewealth,approximatingtoa64/4connection. The64/4correlationalsoimpliesa32%'fair'areabetweenthe4%and64%,wherethelower80%ofthetop20%(16%)andupper20%ofthebottom80%(also16%)relatestothecorrespondinglowertopandupperbottomofeffects(32%).Thisisalsobroadlyinlinewiththeworldpopulationtableabove,wherethesecond20%control12%ofthewealth,andthebottomofthetop20%(presumably)control16%ofthewealth. Theterm80/20isonlyashorthandforthegeneralprincipleatwork.Inindividualcases,thedistributioncouldjustaswellbe,say,nearerto90/10or70/30.Thereisnoneedforthetwonumberstoadduptothenumber100,astheyaremeasuresofdifferentthings,(e.g.,'numberofcustomers'vs'amountspent').However,eachcaseinwhichtheydonotaddupto100%,isequivalenttooneinwhichtheydo.Forexample,asnotedabove,the"64/4law"(inwhichthetwonumbersdonotaddupto100%)isequivalenttothe"80/20law"(inwhichtheydoaddupto100%).Thus,specifyingtwopercentagesindependentlydoesnotleadtoabroaderclassofdistributionsthanwhatonegetsbyspecifyingthelargeroneandlettingthesmalleronebeitscomplementrelativeto100%.Thus,thereisonlyonedegreeoffreedominthechoiceofthatparameter. Addingupto100leadstoanicesymmetry.Forexample,if80%ofeffectscomefromthetop20%ofsources,thentheremaining20%ofeffectscomefromthelower80%ofsources.Thisiscalledthe"jointratio",andcanbeusedtomeasurethedegreeofimbalance:ajointratioof96:4isextremelyimbalanced,80:20ishighlyimbalanced(Giniindex:76%),70:30ismoderatelyimbalanced(Giniindex:28%),and55:45isjustslightlyimbalanced(Giniindex14%). TheParetoprincipleisanillustrationofa"powerlaw"relationship,whichalsooccursinphenomenasuchasbushfiresandearthquakes.[37] Becauseitisself-similaroverawiderangeofmagnitudes,itproducesoutcomescompletelydifferentfromNormalorGaussiandistributionphenomena.Thisfactexplainsthefrequentbreakdownsofsophisticatedfinancialinstruments,whicharemodeledontheassumptionthataGaussianrelationshipisappropriatetosomethinglikestockpricemovements.[38] GinicoefficientandHooverindex[edit] Usingthe"A : B"notation(forexample,0.8:0.2)andwith A + B = 1,inequalitymeasuresliketheGiniindex(G)andtheHooverindex(H)canbecomputed.Inthiscasebotharethesame. H = G = | 2 A − 1 | = | 1 − 2 B | {\displaystyleH=G=|2A-1|=|1-2B|\,} A : B = ( 1 + H 2 ) : ( 1 − H 2 ) {\displaystyleA:B=\left({\frac{1+H}{2}}\right):\left({\frac{1-H}{2}}\right)} Seealso[edit] 1%rule(Internetculture) 10/90gap Benford'slaw Diminishingreturns Elephantflow Keystonespecies Longtail Mattheweffect Mathematicaleconomics Megadiversecountries Ninety-ninetyrule Paretodistribution Paretopriorityindex Parkinson'slaw PeterPrinciple Powerlaw Price'slaw Principleofleasteffort Profitrisk Rank-sizedistribution Sturgeon'slaw Vitalitycurve Wealthconcentration Zipf'slaw Microtransactionwhale References[edit] ^Bunkley,Nick(March3,2008)."JosephJuran,103,PioneerinQualityControl,Dies".TheNewYorkTimes. ^Bunkley,Nick(March3,2008)."JosephJuran,103,PioneerinQualityControl,Dies".TheNewYorkTimes.ArchivedfromtheoriginalonSeptember6,2017.Retrieved25January2018. ^abBox,GeorgeE.P.;Meyer,R.Daniel(1986)."AnAnalysisforUnreplicatedFractionalFactorials".Technometrics.28(1):11–18.doi:10.1080/00401706.1986.10488093. ^Pareto,Vilfredo,Coursd'ÉconomiePolitique:NouvelleéditionparG.-H.BousquetetG.Busino,LibrairieDroz,Geneva,1964.archivedoriginalbook ^Newman,MEJ(2005)."Powerlaws,ParetoDistributions,andZipf'slaw"(PDF).ContemporaryPhysics.46(5):323–351.arXiv:cond-mat/0412004.Bibcode:2005ConPh..46..323N.doi:10.1080/00107510500052444.S2CID 202719165.Retrieved10April2011. ^Marshall,Perry(2013-10-09)."The80/20RuleofSales:HowtoFindYourBestCustomers".Entrepreneur.Retrieved2018-01-05. ^Pareto,Vilfredo;Page,AlfredN.(1971),TranslationofManualedieconomiapolitica("Manualofpoliticaleconomy"),A.M.Kelley,ISBN 978-0-678-00881-2 ^Gorostiaga,Xabier(January27,1995),"Worldhasbecomea'champagneglass'globalizationwillfillitfullerforawealthyfew",NationalCatholicReporter ^UnitedNationsDevelopmentProgram(1992),1992HumanDevelopmentReport,NewYork:OxfordUniversityPress 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7095140.PMID 16292292. ^Lloyd-Smith,JO;Schreiber,SJ;Kopp,PE;Getz,WM(2005)."Superspreadingandtheeffectofindividualvariationondiseaseemergence".Nature.438(7066):355–359.Bibcode:2005Natur.438..355L.doi:10.1038/nature04153.PMC 7094981.PMID 16292310. ^Desai,MartinEnserink,KaiKupferschmidt,andNirja."Gyms.Bars.TheWhiteHouse.Seehowsuperspreadingeventsaredrivingthepandemic".vis.sciencemag.org.Retrieved2020-11-12. ^Adam,DillonC.;Wu,Peng;Wong,JessicaY.;Lau,EricH.Y.;Tsang,TimK.;Cauchemez,Simon;Leung,GabrielM.;Cowling,BenjaminJ.(2020-09-17)."ClusteringandsuperspreadingpotentialofSARS-CoV-2infectionsinHongKong".NatureMedicine.26(11):1714–1719.doi:10.1038/s41591-020-1092-0.ISSN 1546-170X.PMID 32943787. ^Wong,Felix;Collins,JamesJ.(2020-11-02)."Evidencethatcoronavirussuperspreadingisfat-tailed".ProceedingsoftheNationalAcademyofSciences.117(47):29416–29418.Bibcode:2020PNAS..11729416W.doi:10.1073/pnas.2018490117.ISSN 0027-8424.PMC 7703634.PMID 33139561. ^Kleinfield,N.R.(1988-05-01)."ATightSqueezeatVideoStores".TheNewYorkTimes.ISSN 0362-4331.Retrieved2019-02-08. ^Bak,Per(1999),HowNatureWorks:thescienceofself-organizedcriticality,Springer,p. 89,ISBN 0-387-94791-4 ^Taleb,Nassim(2007),TheBlackSwan,pp. 229–252,274–285 Furtherreading[edit] Bookstein,Abraham(1990),"Informetricdistributions,partI:Unifiedoverview",JournaloftheAmericanSocietyforInformationScience,41(5):368–375,doi:10.1002/(SICI)1097-4571(199007)41:5<368::AID-ASI8>3.0.CO;2-C Klass,O.S.;Biham,O.;Levy,M.;Malcai,O.;Soloman,S.(2006),"TheForbes400andtheParetowealthdistribution",EconomicsLetters,90(2):290–295,doi:10.1016/j.econlet.2005.08.020 Koch,R.(2001),The80/20Principle:TheSecretofAchievingMorewithLess,London:NicholasBrealeyPublishing Koch,R.(2004),Livingthe80/20Way:WorkLess,WorryLess,SucceedMore,EnjoyMore,London:NicholasBrealeyPublishing,ISBN 1-85788-331-4 Reed,W.J.(2001),"ThePareto,Zipfandotherpowerlaws",EconomicsLetters,74(1):15–19,doi:10.1016/S0165-1765(01)00524-9 Rosen,K.T.;Resnick,M.(1980),"Thesizedistributionofcities:anexaminationoftheParetolawandprimacy",JournalofUrbanEconomics,8(2):165–186,doi:10.1016/0094-1190(80)90043-1 Rushton,A.;Oxley,J.;Croucher,P.(2000),Thehandbookoflogisticsanddistributionmanagement(2nd ed.),London:KoganPage,ISBN 978-0-7494-3365-9. 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