Pareto principle
From The Art and Popular Culture Encyclopedia
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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. Management consultant Joseph M. Juran suggested the principle and named it after Italian economist Vilfredo Pareto, who, while at the University of Lausanne in 1896, published his first paper "Cours d'économie politique." Essentially, Pareto showed that approximately 80% of the land in Italy was owned by 20% of the population; Pareto developed the principle by observing that 20% of the peapods in his garden contained 80% of the peas.
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.
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.
See also
- 1% rule (Internet culture)
- 10/90 gap
- Benford's law
- Diminishing returns
- Elephant flow
- Long tail
- Mathematical economics
- Megadiverse countries
- Ninety-ninety rule
- Pareto distribution
- Pareto priority index
- Parkinson's law
- Price's law
- Principle of least effort
- Profit risk
- Rank-size distribution
- Sturgeon's law
- Vitality curve
- Wealth concentration
- Zipf's law
- Microtransaction whale