Many outcomes are highly concentrated in a minority of causes; 80/20 is a rule of thumb rather than a universal constant.
Named for Pareto by Juran in the 1940s, from Pareto's finding that 20% of Italians held 80% of the land. The ratio is a memorable label for a rough family of concentrated distributions rather than a constant.
In practice
- A support team finds a fifth of its ticket types produce four-fifths of its volume.
- A retailer's stock report shows a small fraction of lines carrying most of the margin; the concentration recurs widely, and the exact ratio does not.
- Possible explanations
- One explanation is multiplicative growth, in which success feeds on success and outcomes become concentrated. Another is preferential attachment in networks, which produces the same shape from a different mechanism.
- In its favour
- Concentration is genuinely common, in sales, faults, citations and wealth, and the rule directs attention to the few causes that carry most of the effect.
- Against it
- The 80/20 ratio is not a constant and matches exactly only by coincidence, and it is often applied to headcount or pay where the underlying distribution has never been measured.
- Standing
- A memorable rule of thumb for concentrated distributions, not a universal constant.
- Further reading
- Wikipedia
- Subject
- Economics & Incentives
- Essay
- Rules for choosing, and the paradoxes that humbled the theory