This statistical phenomena first documented by Vilfredo Pareto in 1877 found that 20% of the causes contributed to 80% of the effects. This observation tells us to, “throw things against the wall and see what sticks”.
The original observation was on land distribution in Italy. He found that about 80% of the countries land ownership was by 20% of the population. His studies on other countries found the same distribution.
This phenomenon has inspired the ideas of Pareto efficiency and Pareto improvements. These are attempts to maximize the economics of a situation. The promise is if we can measure cause and effect we can answer “are we doing the right thing?”.
The first of two common misuses of the rule is to assume an “80–20 fit” for an activity generating 80% of the results without considering how much resources is required. A crucial part of the 80–20 split is in how only 20% of the resources are required.
The second common misuse is in citing the rule against a small insignificant number of observations.
While the 80 — 20 split is the most well known the distributions can be far more extreme at 95 — 5 and 99 — 1 splits. And there is no need for the two numbers to sum up to 100 as they are measures of two different things.
The takeaway is an emphasis on measuring progress and experimenting with alternative ways of doing things.
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