The Pareto Distribution

May 01, 2020

The Pareto Distribution is an observation that in most practical cases, cause and outcome do not share a romanticized balanced relationship. Rather, 80% of the outcome is, for all intents and purposes, determined by 20% of the factors. A century ago, renowned Italian economist Vilfredo Pareto demonstrated that approximately 80% of all land in Italy was owned by 20% of the population. Except, he did not stop there. He went on to apply his concept of 80/20 distribution in the spread of income and wealth among the population. It soon became known as the Pareto Distribution after him.

The 80/20 distribution has gone way past showing the distribution of land-ownership in Italy. The pattern continues to reveal itself time and time again in various situations and under different circumstances. A common business axiom is that 80% of revenue is typically garnered from 20% of its most loyal client base. This right of the bat may not come across as very intuitive. Businesses regard all of their clients in the same breath of seriousness. However, what the 80/20 distribution may reveal that perhaps, that is not the most effective usage of time and resources after all. Time and resources are limited and we must back our decisions with evidence. You can master time management further by strategizing tasks with the Eisenhower Method.

Businesses can streamline their focus on solving the few critical problems that have the most impact on the final result, or reaching out to the few clients first that ensures most of their business. That will potentially save invaluable time and resources and secure business growth. If roughly 20% of the factories in the world contribute to 80% of all carbon emissions, we can develop more practical tools to curb the emission of greenhouse gases.

If we look at software development, we may find that 20% of the bugs in software result in 80% of the crashes during the outcome, resulting from the Pareto Distribution. In that situation, we can allocate more resources debugging a few critical errors during pipelining. Bloggers can use a similar guiding framework to create the best reading experience for selective readers who frequent their blogs as opposed to those who are not avid readers. Also, it’s a great tool when doing risk assessment since not all risks bear the same cost/consequence. We want risks to commensurate accurate costs.

Complying with the Pareto Distribution, the cause of 80% of the marks in exam result outcome is largely attributed to 20% of the topics that have been understood really well. The 80/20 distribution for factory owners should make them more aware of the fact that not all factory workers are equally productive and that most of the output in a factory may actually be attributable to the work put in by a few of the workers. We can theorize the distribution spread to conclude that 20% of the defects contribute to 80% of problems in products.

We can explain the virality of videos and channel growth on YouTube with the Pareto Distribution – 20% of videos drawing in 80% of all traffic. The knowledge of how the relationship between cause and consequence plays out allows us to not fret over things that ultimately don’t contribute much to the outcome and streamline our focus into getting that one or two things done in a day that will have the most impact.

The imbalance relationship between input and output is profound. It reveals in many forms. There are a few misconceptions that need to be cleared out. First, the Pareto Distribution is not a proponent of working less since most things eventually don’t matter. Rather, it’s an observation of how cause and consequence play out in reality. There is no compensation for less focused work. Second, the 80/20 are not magical numbers that pop up out of the blue. There are likely to be many situations which do not strictly obey the number. Therefore, we need to expand the definition to incorporate different circumstances. We should not restrict ourselves by numbers. Rather, we should internalize the notion of “vital few-trivial many“.

The Pareto Distribution boils down to this simple idea:

  • Prioritize the vital few that yields most of the result
  • Trivial many that all add up to the tiny rest of the outcome should take a backseat.

Lifestyle and digital minimalism can pick up essential values from the Pareto Distribution. Many have wardrobes full of clothes, yet turn to a few selected pairs every time. Therefore, you can minimize your wardrobe to house only a selected few outfits. Most of our smartphones are cluttered with a million apps. We haven’t opened most of them in ages. The most used apps, which are usually a handful, sit conveniently on the home screen. Is your social media a mess too? How many meaningful connections do we really have from thousands of friends and followers on our socials? Dunbar’s number suggests that our cognitive limitation impedes our ability from forming meaningful connections with over 150 people, which accounts for 15% of 1000 connections and hence obeying the distribution. The Pareto Distribution draws our attention to the few that matter most.

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