Friday, August 19, 2022

Vilfredo Pareto and the 80/20 Rule on This Day in History


This Day In History: Italian economist Vilfredo Pareto died on this day in 1923. VP gave us what has come to be called the Pareto Principle, or the 80/20 rule. According to legend, one day he noticed that 20% of the pea plants in his garden generated 80% of the healthy pea pods. Observing this caused him to think about uneven distribution. He then discovered that 80% of the land in Italy was owned by just 20% of the population elsewhere. He investigated further and found that 80% of production typically came from just 20% of the companies. The generalization became: 80% of results will come from just 20% of the action. An extended analysis tells us that 20% of the sales reps generate 80% of total sales, 20% of customers account for 80% of total profits, 20% of the most reported software bugs cause 80% of software crashes, 20% of patients account for 80% of healthcare spending, 20% of criminals commit 80% of crimes, 20% of drivers cause 80% of all traffic accidents, 20% of the world's population controls about 80% of the world's income.

Also, 20% of farmers produce 80% of the world's agriculture, 20% of your phone apps get 80% usage, 20% of shareholders own 80% of a corporation's stock, 20% of professional athletes cause 80% of ticket sales, 20% of bar liquor is consumed 80% of the time, 20% of your knowledge is used 80% of the time, etc.

If everyone started with an equal amount of money and then started to transact, 80% of the wealth would end in the hands of the 20%.

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