Pareto Principle - 80/20 Rule

How To Benefit From The Fat Tail Fractal Factor

Less Than 1% Of Your Resources Will Deliver Over 50% Of The Results


Pareto Principle - 80/20 Rule & How To Benefit From The Fat Tail Fractal Factor.
Less Than 1% Of Your Resources Will Deliver Over 50% Of The Results. Graphic illustration.

The Pareto Principle - Overview

The Pareto Principle, also known as the 80/20 Rule, and sometimes known as "The Law of the Vital Few and The Useful Many", illustrates that 80% of effects arise from 20% of the causes.

This means that causes of an outcome can be divided into two categories:

  • The vital few: A small number of causes that account for most of the outcomes.
  • The useful many: The large number of remaining causes that individually and collectively account for a relatively small part of the entire outcome.

In practical terms: 20% of your actions/activities will account for 80% of your results/outcomes.

The Pareto Principle gets its name from the Italian-born economist Vilfredo Pareto (1848-1923), who observed that a relative few people held the majority of the wealth (20%) – back in 1895.







The Pareto Principle is an observation, not a law of nature

  • It is a generally applicable observation about the imbalance of inputs and outputs.
  • The 80% and 20% are just indicators. It’s a misconception that the numbers should always be around 80 and 20. They do not necessarily need to be, these numbers are just a guide.
  • The point is the imbalance, the inequality and not the ratio.
  • The key purpose of this observation is to prompt you to find the small things that give you the biggest results - i.e. the point of maximum leverage
  • The Pareto Principle is a model and a tool to enable you to work  smarter and prioritize the right things in order to deliver better results and value.






80/20 Rule Examples

  • 80% of problems originate from 20% of projects
  • 60% of your distractions come from 40% of sources
  • 70% of customers only use 30% of product features
  • 90% of complaints are made by 10% of users
  • 80% of value is achieved with the first 20% of effort
  • 85% of the important conversations are from 15% of the emails






Steps to apply the 80/20 Rule

  • Identify all your daily/weekly tasks
  • Identify key tasks
  • What are the tasks that give you more return?
  • Brainstorm how you can reduce or transfer the tasks that give you less return
  • Create a plan to do more that brings you more value
  • Use 80/20 to prioritize any project you’re working on
  • Set a plan to focus on activities that produce the most result





How to set goals based on the 80/20 Rule

[1]  Identify your key tasks based on your goals

  • What’s blocking you?
  • Make a list of your constraints.
  • What’s standing in the way of your priorities? 


[2] Clarify and unblock

  • More clarity will help you have a better vision of your goals and what you need to do in order to achieve those goals.
  • Removing impediments enables you to improve focus on tasks that will give you more return.

[3] Work smarter

  • The Pareto Principle should be a constant basis in your personal and working life.
  •  Evaluate, prioritize, focus, and continuously work smarter.






Pareto Principal and The Fat Tail


Power law distribution

The graph above  illustrates and compares the bell curve of standard distribution and the  80/20 curve of power law distribution.


The Bell Curve - Standard Distribution

The Bell Curve is the distribution model that most of us are familiar with and it is fairly accurate way to describe simple systems.

It works best where the range of variation - the variation from the mean [average] - is not that great. A good example of this is the height of people. If we take the average height of a woman as 163 cm or 1.6 meters or, as expressed in imperial measure, 5 feet 3 inches the range of variation is going to fall within 91 cm and 213 cm, or 3 feet and  7 feet.

In this standard distribution, the height of most women will lie in the middle of the bell curve and the height of the smallest and highest  will trail out slightly to each side of the bell.






The 80/20 Curve - Power Law Distribution

However when you are dealing with statistics where the range of variation - the variation from the mean [average] - is large then the 80/20 Curve is the appropriate model.

It is referred to as a "Power Law Distribution". Put simply [as a non statistician I can only only see these things simply]:

A power law describes a relationship between two things in which a change in one thing can lead to a large change in the other, regardless of the initial quantities.

A good example of this is income. If we assume the global average annual income per person is $18,000 the range of variation from the average figure is colossal.

Taken at the country level, India has an average per capita income of $1,700 whereas Monaco has an average per capita income of $180,700.

At the individual level the range is extreme. Just for the purpose of this illustration, if we take the lowest individual annual income from India as $1,700 per annum, on the highest end of the income spectrum there are a small number [1%] of individuals making an annual income of $500,000 per annum   and even smaller number making over $50million per annum.






The Long Tail

In the graphic above, the long tail is the section to the right coloured green which commences at the point where the Bell Curve intersects the 80/20 curve.

The statistical term long tail is a pattern of distribution that occurs when a larger share of occurrences occur farther away from the mean or average value.







The Fat Tail

In the graphic above, the fat tail is the section coloured yellow to the left of the point where the Bell Curve intersects the 80/20 curve.

The statistical term 'fat tails' refers to probability distributions with relatively high probability of extreme outcomes.



 

Resource

For a fuller, and relatively easy to read, explanation of the dynamics of Power Laws I recommend Shane Parrish's excellent article:

Power Laws: How Nonlinear Relationships Amplify Results






It's Now The 80/20 Curve That Defines Our Lives


From this point onward in this article I am deeply indebted to Taylor Pearson:

"...as our world grows more complex and interdependent, the bell curve is a worse and worse way of describing the things that matter to us.

It’s now the 80/20 curve that defines our lives. The statistical term 'fat tails' refers to probability distributions with relatively high probability of extreme outcomes.

80/20 is striking to most people because it indicates that the natural order of most systems is not an equal distribution, but an unequal distribution: only 20% of customers account for 80% of revenue."

However, the disparities are even larger than most people think.

The really striking part is just how concentrated the “fat tail” of the curve is.



    “The greatest shortcoming of the human race is our inability to understand the exponential function.” [Albert Allen Bartlett]







How To Benefit From The Fat Tail Fractal Factor?

The fat tail fractal factor.

Jesus Marketing [Taylor Pearson]

Why is the Fat Tail  so concentrated?

Because the 80/20 is fractal, meaning it can be applied to itself.

If 20% of people own 80% of the land, we can then take the 80/20 of that new 20%. In that case, 4% of people would own 64% of the land.

If we then took the 80/20 of that, then 0.8% of people own 51.2% of the land.

That’s really concentrated! And this is true everywhere.

Almost everyone systematically under-allocates resources to the fat tails

We tend to spend most of our time and energy thinking about the middle, because we see the world through a bell curve lens, and most of the area in a bell curve is in the middle. But in reality, we live in an 80/20 world.



    The Top 1% Of Fat Tails Account For 50% Of The Results







Focus on depth, not breadth

Taylor Pearson says:

"A good rule of thumb for identifying the fat tail in any given system is to think about how to go deep, not wide.

A key reason why all the margin is in the fat tails is because there is no clear cause and effect. The fat tails are profitable in part because they are hard to directly attribute.

It’s almost impossible to measure depth, but easy to measure breadth.

In relationships, the number of Facebook friends you have is easy to measure, but that number is a horrible metric of anything meaningful. You can have tons of FB friends and feel terribly lonely. Most people do.

In marketing, it’s easy to measure how many contacts are in your database, but hard to measure how much the top 1% are worth.

In books, it’s easy to measure how many books you’ve read, but really hard to measure how much a book impacted your thinking."

Investing more in fat tails means being wrong a lot more, and perhaps this is why the most successful people often say they made a lot of mistakes.

They made a lot of fat tail investments, most didn’t pay off, but the ones that did make all the difference.






Resources

Taylor Pearson:

4 Strategies To Find The Work Only You Can Do (And Why It’s More Profitable Than Ever)







Further Reading: Applying The Fat Tail Fractal Factor

Return from "Pareto Principle" to: Mental Models






English Chinese (Traditional) Russian French German Italian Spanish Vietnamese



LATEST ARTICLES

  1. Coram Deo - Living In Consciousness

    In you there is a dimension of consciousness far deeper than thought. It is the very essence of who you are. Coram Deo is about living in consciousness. It is a Latin phrase which literally means “to…

    Read More

  2. The Power Of Patience - Why You Need The World's Toughest Quality

    Nothing in the world can take the place of patience. Patience and persistence are omnipotent. In everyday life, patience is often overshadowed by the desire for immediate results. We live in an era of…

    Read More

  3. Demonizing The Other and Personal Acts Of Compassion

    What Does Demonizing The Other Mean? Demonizing the other refers to the act of portraying a group of people or an individual as inherently evil, threatening, or inferior. It often serves to justify di…

    Read More

  4. Why You Should Embrace Anomalies - The Incredible Value Of Disconfirming Evidence

    Is Your Desire To Be Right Greater Than Your Desire To Have Been Right? An anomaly is a deviation from what is expected or commonly regarded as the norm. It often appears as an unexpected observation…

    Read More

  5. Amazing Grace - The Majesty And The Mercy of Freedom From Your Pain

    "I once was lost, but now I am found, was blind, but now I see." The hymn and popular song "Amazing Grace" was written 250 years ago by John Newton, a former slave trader who in 1748 nearly died in a…

    Read More

  6. The Transformative Power Of Acceptance

    Experience The Power Of Acceptance. This website contains about 500,000 words. You could read every single word and it wouldn't make any real difference to you. You might become better informed, but t…

    Read More

  7. Inversion - The Power Of Opposite Thinking

    How To Avoid The Unwanted Outcome. The power of opposite thinking, also known as inversion, lies in its ability to stimulate creativity, enhance problem-solving, and provide a fresh perspective on cha…

    Read More

  8. Are You Aligned With Reality? Or Do You See What You Believe?

    We tend to see that which aligns with what we believe, and to act upon that rather than acting on reality. Being aligned with reality starts with a clear and accurate understanding of the world. It me…

    Read More

  9. The Law Of Response and Outcome

    A New Approach To A New Life At time of writing we are entering a new year which is traditionally a time of making resolutions to change our behaviour and improve the quality of our lives. And yet pow…

    Read More

  10. Clear Thinking - Turning Ordinary Moments Into Extraordinary Results

    There are two ways to handle the world - try to predict, or try to prepare. "Clear Thinking" by Shane Parrish, published in Oct 2023, is a laudable testament to the art of cogent thinking, and will be…

    Read More

  11. Self Dialogue - Working With Your Many Selves

    Self Dialogue Is About Working With ALL Levels Of Your Mind. The key to effective self dialogue is to have tools, techniques and resources that work with all levels of your mind. This simple self-faci…

    Read More

  12. The Balanced Brain - The Ultimate Route To Personal Transformation

    How To Experience The Benefits Of A Balanced Brain. Underpinning all of the belief systems and practices that offer routes to personal change, transformation and spiritual growth is the balanced brain…

    Read More

  13. How To Make Better Decisions - By Avoiding The Narrative Trap

    To Understand The Truth We Have To See The Whole Picture. One of the best ways to make better decisions is to have a deeper understanding of the many things that might stop that happening. To understa…

    Read More

  14. The Greatest Love - The Most Important Relationship You Will Ever Have

    Yet Most Will Never Know It Everyone of us has a place, in our hearts there's a space, that is home to the greatest love of all. This love transcends everything we think we know about the world of for…

    Read More

  15. Everything Is Connected And Why You Don't Feel It

    ...And Why It Matters As human beings we are skating on very thin ice with our sense of self and certainty about "how things are" and what we like to think of as reality:

    - What if everything we think…

    Read More

  16. Who Is In Charge Of Your Brain?

    How Not To Be Stupid. Who is in charge of your brain? This is not a silly questions. It matters because the outcomes that you experience in your life are determined by how you respond to the events th…

    Read More

  17. How To Be A Winner On A Very Large Scale

    The Incredible Benefits Of Selective Attention. This is not a typical article about how to be a winner. We are not going to talk about goal setting, the importance of habits, the power of focus and al…

    Read More

  18. The Metagame Approach To Life

    How To Achieve Your Biggest Objectives. The metagame approach to life is all about winning and achieving your biggest objectives by: - Understanding the bigger picture
    - Being better by doing things d…

    Read More

  19. Shantideva - The Way Of The Bodhisattva

    Walking The Path Of Compassion. Shantideva the 8th century Indian Buddhist sage is famous for his treatise "The Way of the Bodhisattva" delivered as an extended teaching to the monks of Nalanda monast…

    Read More

  20. Reframing History - Deconstruction And Discussion Not Destruction

    History is always about context, not imposing our own moral values on the past. For those of us fortunate enough to live within western democracies, we are living in an age where a vociferous and into…

    Read More

  21. Tao Te Ching - Connecting To Your True Source Of Power.

    How To Be Lived By The Tao. The Tao Te Ching is one of those books that many people read, few understand, and even fewer put into practice. The only way to know the Tao is to experience it, and it is…

    Read More

  22. How Things Really Are - The Inbuilt Design Flaws

    Chaos, Disorder And Decay Is The Natural Order Of Things. Nobody has the perfect life. We all struggle and strive to attain health, wealth and personal happiness. Yet these three big areas: our health…

    Read More

  23. Intuition Or Anxiety - Are There Angels Or Devils Crawling Here?

    How To Tell The Difference Between Intuition and Anxiety. How do you know whether the voice of your intuition is real or just the product of your inner anxiety? Several months ago I was having a drink…

    Read More

  24. What Is Truth - How To Tell A Partial Truth From The Whole Truth?

    How the truth and nothing but the truth is often not the whole truth. My great aunty Flo broke her arm and died. It is true that she broke her arm in 1923. It is also true that she died in 1949. But t…

    Read More

  25. Duality And Life Beyond Your Thinking Mind

    Duality and life beyond your thinking mind focuses on the limitations of time, foreground and background, duality and "stuckness". The first aspect of duality and life beyond your thinking mind focuse…

    Read More

  26. The Conscious Mind Is Limited - Be Aware And Be Prepared

    Being aware is the first stage of being prepared. The conscious mind is limited in so many ways. There are some who would argue that there is no such thing as conscious thought and that it is represen…

    Read More

  27. Your Inner Map Of Reality - Here's Why You Think The Way You Do

    The big picture of how your inner map of reality creates your feelings, thoughts, and behaviours. Your inner map of reality is based on the filters of your own ethnic, national, social, family and rel…

    Read More

  28. The Failure Of Cancel Culture - Suppression Not Engagement

    Why we need to wear our beliefs lightly and develop negative capability. Throughout history people have campaigned to fight beliefs, ideologies, and injustices that they perceived to be oppressive, di…

    Read More

  29. 4 Big Reasons Why We Get Stuck In Our Attempts At Personal Change

    Most People Spend Their Entire Life Imprisoned Within The Confines Of Their Own Thoughts. This first of the 4 big reasons why we get stuck is, in my view, the most important. The "self-help industry…

    Read More

  30. How Do I Change And Why Is It So Hard?

    We Would Rather Die Than Change, And We Usually Do In my experience, the vast majority of people who say they want to change don’t change. Most people reading this won’t change because they don’t real…

    Read More



Get new posts by email:









Zen-Tools.Net





Support This Site