The 80-20 Rule Explained (Pareto Principle)
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- เผยแพร่เมื่อ 6 ส.ค. 2024
- The 80/20 rule or Pareto principle comes up a lot in economics and business. But why does this pattern emerge? I show why using a paper clip experiment.
Note: VSauce later made a video about Zipf's law that uses this same experiment but does the math incorrectly. The long tail should be for the single chain of long length.
Income distribution graph by vikjam (CC BY-SA 3.0)
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< 20% of the strippers in a strip club earn 80% of the money :)
@Seljak Magnum this is facts though lol
This is great
80% of this is gibberish while 20% of this is good enough to help me pass
😂
LMAOO
The Download Principle says that 99% of any download will come from the last 1% of the process.
S B 90% of internet heavy usage in a internet provider comes from 10% of its customers... this is the biggest cost in bandwidth to the provider. in Australia some service provider disconnect these customers.
my neighbour has a heavy use of sex workers... he's got to be their biggest customer and those of his ilk.. so he must be that 20% that all the revenue comes from.
as for drug users...and dealers.. the same.
for people who buy music, books, comics...
I think it comes down to time.. how much certain individuals commit energy to one fixation
Real AZN from which book
Hahaha good one tho actually
I am impressed by the illustration of the Pareto Rule using paper clips
This explanation is awesome in its succinctness. Thanks.
I apply Pareto principal to everything in life.
Someone dropped this term in a conversation regarding socialism. This video helped a lot understanding the principle. Thank you.
Outstandingly simple, Thanks!
The vital few and the trivial many - this principle could be applied to anything.
I came to watch this video after watching Why Did I Get Married
Great video... much useful explanation (y) !!!!
Great illustration. Thanks for the video
Hi. How'd you determine objectively, in industries outside economics (like studying for college, creating an app). which is the 80 and which is the 20?
How do you know when to stop clipping paper clips? Doesn't your ratio simply depend on when you stop? If you stop immediately, you have 80% of paper clips in 80% of the chains. But if you continue until exhaustion, you get a single chain.
In life the details are in part an area that can be viewed as inside of or outside of our control.
I have similar doubts about the pareto principle. But it seems there are no videos explaining those. Like sometimes to explain it, they pick specific cases that apply to that rule
Yes, after enough time, 100% of the paperclips will be chained
The proper way to demonstrate would be to set each paperclip chain aside on a random basis, then finish when you run out of paperclips
Amazing explanation!! 🔥
20% of the people poop 80% of the waste.
Excellent example! It seems Matthew beat Pareto by a few centuries: "Whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them."
Nope. As the paper clips example, those at at the bottom don't get poorer, it just takes them longer to get rich. The single clips don't get broken into smaller pieces, they are just picked up more rarely.
@@andreipopescu5342 Perhaps you missed the first sentence of the quote in your haste to be the arbiter of truth on the internet?
@@oakmeal53 the first one is relative (everybody has something), the second is false.
@@andreipopescu5342 Oh?! Glad you settled it here and now!
@@oakmeal53 always, my friend! Point is: nobody is getting poorer because others are getting rich on a free market :D
Thnk u for this so short but an effective explanation
This paperclip visualization was really awesome.
Cool thanks for the video !
Love this!
Sir what is the 92 Other Powerfull Laws of Nature ?
Thank you for your explanation. I am looking for examples from nature which would support your remark that the 80-20-rule is a nature's law. But I cannot find them, perhaps you can name a series within the life of plants and animals? Thanks!
Yes. Fractals.
20% of men sleep with 80% of women -power, money, wealth, beauty...
80% of peas produced by a garden come from 20% of the plants
80% of birds you observe will belong to 20% of the local species
80% of sleep quality occurs in ~20% of sleep time
20% of words in a language account for 80% of the words used
cool illustration ！
I am wondering if the game Left, Right, Center is a way to illustrate this concept, since at some point two players end up with all the money, and but then one player gets the jackpot...I'm not sure it this example applies well
this is an amazing explanation.
In terms of Pareto’s principle in context of efficiency and success, lots of people are so glib to limit it to financial success. The Pareto principle is very useful in solving the world’s bigger and more meaningful problems. If humanity spent all its efforts in a very few but really serious problems, one of which is the entanglement between Western and Islamic societies, then we would avoid a devistating war in the future which nullifies our so called success. Because in these times of ideological rigidity and polarisation, true success is reducing the chances that we destroy the entire human race unnecessarily and stupidly.
nice job 👍
I think this really related to zipf's law (cf Vsauce video)^^ , with the same power law !
+Bob DuJardin Yup this does relate to Zipf's law! The VSauce video used this same paper clip example but it actually drew the graph incorrectly (the beginning spike is for the many single paper clips, and the "long tail" is for the few chains that get long in size). So I wish he would have linked to my video which got the mathematical details correct ;)
Thanks for better presentation
It seems to me that the Pareto Rule represents a fundamental principle of nature. Capitalism seems to be a manifestation of this principle which is why an idea like socialism has proven to be a resounding failure throughout history. Approximately 20% of companies contribute to 80% of tax collections. A small population of men attract the greater population of beautiful women. Dominance hierarchies could explain this phenomena.
It always comes back to being alpha and getting women for the alt right. Our economic system nothing to do with the insecurities of minority of middle aged white men.
It is not only the capitalism...it is also feudalism, slavery, and any human society...there will be few rich and many poor....Socialism can make the pareto distribution maybe less sharp...but not flat....
OR(AND) "It always comes back to being half black half yellow, old , Alpha woman and getting men for the far left . Our economic system has nothing to do with the insercurities of minority of old age black women. "
I think it has to do with the path of least resistance and efficiency. They say 80% of the foot traffic in your living room covers 20% of the actual floor/area space. It's the natural efficient way in which we set things up to make it "make sense" or provide convenience (unless you purposefully make it an inconvenient layout), and it's another thing where the 80/20 rule is observable. It's absolutely fascinating but also I think very important to understand why certain things observances such as these are they way they are.
It is interesting, evaluating economic systems from a hard science/mathematical perspective
People claim that the human psyche/emotions triumph over rationality, but on a macro scale, it’s simply not true. Human behavior follows the behavior of the universe, which is both comforting and concerning, if our behavior can be simulated by fluid dynamics or entropy calculations.
I was told there's a different rule, very similar, called 90-10. Is it true or was I told wrong?
Yes, there are similar (100 - x) | x statements of the rule.
9 chains. 34 individual paper clips. 100 clips in total. So '80% of clips are in the top 20% longest chains' is not true for this experiment?
In this example there are 44 groups. 20% of 44 is 8.8, so the first 9 groups should contain roughly 80% of the total number of paperclips.
Groups 1-9 contain 65 paperclips which means that the top 20% have 65% of the paperclips. The reason for this is that the test is too short, ie, to many groups to get accurate results. If the test was carried out for longer we may see different results, however will still see a huge amount of paperclips held by the few not the many.
Can this idea be demonstrated with anything else (not paperclips?)
Sure. Try peas in a pod. You'll notice that 20% of the pods are responsible for 80% of the peas. If you'd pick a novel at random and listed all words in said novel and their frequency, you'd see that 1/5 of that vocabulary is responsible for 80%, so the bulk, of the text. It's literally everywhere.
The Pareto principle is closely connected to Zipf's law. Google that if you want to be even more amazed.
You can play a trading game. Give every one 10 pennies. Have them flip one at a time(lets say heads wins). Make a tally after each stage. Eventually it will start to resemble a pareto distribution. It is time consuming, though.
20% of the countries in the world (Starting from largest being Russia, to the smallest of the top 20%, being Myanmar), have 80% of the world's landmass.
How about capital? It grows faster as it becomes bigger.
compound interest in my opinion. the bigger gets bigger
You made my day
This was almost word for word from the vsauce video
Is there anything a person can do to be part of the valuable 20 percent prior to it being already established?
Well it's not "established" in a sense. It consists of people, and the people there change. So, unless you're living in a totalitarian states like Russia, NK, China, Islamic states, you have all the chances of getting into the 20% without damaging your soul and principles.
Concienciousness and IQ are the best predictors of long term success cross-culturally, so... The most reliable method is to educate yourself non-stop, work 80 hours a week and grab every opportunity that comes your way.
create a new product ..
Be aware that 80% of your success will come from 20% of your effort
Find that 20% and focus on it
Hmmm
But if you repeated this long enough, you would eventually have all the paper clips in the same chains, so it seems kinda arbitrary to use this as an example to me (as you could justify a 1% 99% rule as well--occupy wallstreet anyone?!)
Am I wrong here? What am I missing?
I don't remember the specific details, but you are right in regards to systems without mechanisms for redistribution of things. However, in the real universe this rule will tends to hold for everything from mass of objects in a solar system to economic activity to word-lengths in a language, so it is useful for modeling the distributions of single variables in recently* closed systems.
*relative to whatever timescale the variable you are modeling changes significantly over--mass distribution in a given solar system has a much larger time horizon than average word usage as a percentage of total for a given real language.
Christopher Albano
Well it sounds to me like the term "80/20 rule" is a misnomer then.
No offense, but I don't really understand your second paragraph at all.
80/20 is a bit of a misnomer, but the point is that it tends to be a useful generalization. The point of the second paragraph is that different cases can have different timescales over which the generalization is useful, and that is a function of how fast change in the system examined is happening.
The speed of the clips chaining together will get greatly reduced at some point, because it'll get more likely that the 2 clips you pick will belong to the same chain already and nothing happens.
If we added a "tax" element to simulate a real life scenario better, for example randomly unchaining 1 paperclip from any chain after every 5 joins, I'd bet that the limit value for the ratio would approach something like 80/20, because the rate of the clips joining together will constantly slow down while the hindering effect stays at constant.
That's a good point Mixa. I dunno where the equilibrium point would ultimately fall (probably around 80/20 like you said, but I'm not going to do the math or run experiments so I'm not going to pretend to know), but there would be an equilibrium distribution which random distributions would not fall far from.
As I recall, Pareto's claim was something like: "In a free market economy, 80% of the wealth will tend to accumulate in the possession of 20% of the people." This is a nice illustration of how the idea can apply to various processes, how a sort of critical mass of cause or influence, once reached, will tend to attract more of certain consequences than competing processes.
It was that 80% of the land (in Italy) is owned by 20% of the population
Pareto then discovered the time generalized to many other statistical areas
It was also rediscovered and popularized by another statistician after WW2
is it going to exactly 80/20 or we can have 79/21?
It's almost never exactly 80/20. Importantly, the numbers don't need to add up to 100, in actuality.
@@kaohsiung99 can we mathematically prove the numbers 80 and 20 ?
No. It's a general concept--not a mathematical law. Things in life vary---your body weight, the distance between the Earth and the Moon, the temperature of the ocean, etc.@@datvuong7420
20% of the food in my house gets 80% of the eating
i think u misunderstand the principle
the 80/20 rules is just an arbitrary number based on the laws of probability. in other words, the way you CHOOSE to arrange the numbers.
you could just as well have an 79/21 rule or 90/10 rule, or 50/50 rule etc.
it all depends on your arrangements of the variable per score of probabilities over a certain amount of time and space.
in other words, the rule is based on the calculus of number arrangement and not on a particular 'magic' formula.
So with this theory, if I'm a hunter, and others are against hunting, an argument I could use is that I'm "most likely" harvesting one of the 80% which are not likely in the 20% which will do the breeding, therefore I would be taking nothing from the breeding stock.
Isn't it zipfs principle?
0:46 paper clips experiment
Still doesn’t make since.... how does know this increase productivity?
It helps us know that you don't need to focus on all the variables to make a decision. Focus on what is important and ignore all the trivial matters to achieve the best results.
Focus on the critical 20% to be 80% more productive
this idea doesn't work in art. eg. jazz. this is because if you just learn the main chords you can play but all the variants of the main chords that you individualise and appreciate makes you the player. so you can't accomplish it by use of summarising but it can work as a starting point
On average 20% of the chords are used 80% of the time
How are you going to use the Pareto Law to achieve an objective effectively and efficiently
Just don't be Indian
Indeed
So... is it inevitable that, in any system (capitalism or any other), the rich tend to become richer and the more powerful tend to become even more powerful? Is it an inevitable law of nature and math? I would really appreciate your response, thanks!
Given a closed system, this tends to be the end result as measures for homogeneity increase. There are a lot of things that change the dynamic in respect to human social systems though--new technologies, better access to resources or education, cultural exchange or carefully designed mechanisms for redistribution of resources all effectively reduce the rate at which this shift happens or add new wealth into the equation, which itself allows the process to persist over more iterations before homogeneity is achieved. On the flip side, if too much concentration of resources in a given social system happens, people will act rashly when push comes to shove and desperation sets in. "Let them eat cake" tends to end with violence which is itself a fashion in which a closed social system stops behaving as a closed system. France and Russia are both fairly famous examples of this type of violent upheaval, but there are plenty of other good examples. It is in our interest as a society to want to design our society to minimize the risk of that particular outcome through careful application of effective countermeasures.
Yep. Survival of the fittest babe! Woohoo!🙃🙅
The successful will increase their success
The people who can’t handle money or resources will lose what they have
Biblical, almost
Cause I really don’t like the example of wealth distribution. This does not take into account a close to true free market. As a matter fact if you look at the top 20% or even the top 2% there’s a great amount of individuals to move in and out of these categories
Oh so that's the 80-20 rule. Why didnt i think of that?
Those racist chains.....
FeroxX loooool
the right will always see themselves as the victim... always
@@davebeha5365 definitely. All of those right wingers firebombing houses and looting stores because of their victim mentality.
@@davebeha5365 it's not fake, it's overblown. The economies didn't have to be devestated, and people didn't have to set fires to their neighbors businesses.
@@nspidel
Thanks for your expert opinion.
Sux to you if you are dealing with a company and you get 20% of their effort coz you are among the 80%. Every customer counts? Yeah right!
The top 10% of income earners in the United States are always changing. People float in and out of the top 10% of income earners. It’s never the same cohort group. It’s actually what I would call a major flaw in the book Capital by Picketty. Moreover, inter-generational wealth is gone by 2 to 3 generations even for the richest families. Nothing wrong at all with Vilfredo’s observations.
That is an example of giant component more than Pareto principle
So we are fucked!!!
Jordan Peterson brought me here
Me too. I wouldn't have heard of it if not for him.
Same
Same
so how does a few long paper clip chains show how the rich get richer? the mechanisms seem very diff
Sam Dawkins The more you have, the easier it becomes to make more money.
@@myexistenceisamomentarylap815 YESYES, bankers loan to persons who have made more money on the loans they paid back with interest, some after many entrepreneurial forays beg for the rich to borrow, banks need only approx. 18 % on hand to lend or create loans from thin air
of 5 times that amount. Bankers create the rich to create wealth for the bank.
V.Pareto an Italian engineer, sociologist, economist, political scientist, and philosopher, now also known for the 80/20 rule, named after him as the Pareto principle. He made several important contributions to economics, particularly in the study of income distribution and in the analysis of individuals' choices. He was also responsible for popularising the use of the term "elite" in social , not paper clips.
i have never seen a more blatant demonstration of reductionism in my life
The rich get rich because luck of being born with IQ and networks of people supporting , including such as banks, banks give loans to those the banker favors such as those that pay back and have assets such as collateral, banks if all payments are made will decide to loan to those that return even larger interest amounts on profitable endeavors, the rich get richer yes, at a point tho' some may hire people that can attain even more gains , with a consequent cost , this does work , as seen in huge IPO gains also , that's similar .
Wrong, and that's not what this principle would dictate.
From what I've heard. Pareto appears to happen EVERYWHERE.
20% of your crops will yield 80% of your edible food
80% of the dust on your floor collects on 20% of the floor.
Its som strange phenomenon. I just wonder if it's truly universal or if exceptions have been discovered.
With money distribution, the top 30% of adults hold 97% of the total wealth.
So that's 70-30, not 80-20. Close enough?
close enough
Give it a bit more time.
You only walk around 20% of the house 80% of the time
It’s an approximation, some aspects are 1:99 or 30:90 or 4:64 or even 50:50
However, 20:80 is usually a good starting point for any model
If I had a farm of strawberry shrubs. Do 20% of the shrubs have 80% of all the strawberry ? oO
Prashanth Subramanian Not if all plants are treated equally all time but once few critical plants starts getting more manure thro area and relatively more water supply and whether condition then it will start carrying major chunk of all fruits and if such natural act persist then it turn toward accounting huge portion of strawberry stock. Again any disturbance to natural cause and effort of normalization of condition effect on plants may deviate it from 80/20 rule applicability.
Probably all shrubs would bear fruits, but the 20% would have the most and better yield. Factors include many things, the placement, genetics, etc. If by any chance you have all the best plants and conditions, then your crops are included in the top 20% of ALL strawberries.
no , of course the pareto logic is not applicable in the real world , the paper clips is a very unwelcome analogy, try Pareto's original data.
it is not clear why you've isolated the big changes.
Damn I don't get it
People mistakenly try to use this idea to support right wing politics, as a way to justify disproportionate accumulation of wealth by the moneyed few. Linking paper clips whenever they meet is an artificial construct. One could also say: " if every time You have a dollar, You immediately spend it for something of equal value, You amass more wealth than someone who accumulates money", because money's value is driven down by inflation. Also if You hold money and don't spend it, it has no value as long as You don't buy anything with it. In fact wealth is accumulated by something called credit. The people lending money and collecting interest are the ones who accumulate wealth. The ones who run a negative credit balance end up losing 80% of what they have. interest is an artificial construct, and as Einstein pointed out it is the most powerful force in the universe because it is not constrained by the laws of physics . It is faith in a monetary system, and faith in authority, that keeps this system afloat, AND as soon as it becomes evident that it is a scam, or becomes too oppressive , then the BUBBLE bursts. This is something that Jordan Peterson will never figure out, even though he claims to understand history and the human psyche.
Your paperclip example is a non linear system.
Does this apply to taxes lol 20% supply 80 % of tax revenue
It would be interesting to see how the Laffer Curve and the Pareto Principle affect each other.
Thank you for sharing indeed the rich will always get richer.
Here because of Jordan Peterson
was the square root rule that he mentioned true?
Join the club lol
Nick same fam
Then you see the flaw in his reasoning right? Peterson claims that it is a rule caused by differences in individual abilities, while this shows that is just a statistical force (much like entropy) without any "individual merit" involved.
you admit this?
Anyone wants to join Amway business then let me know
no menterao
Poop
80% here are Peterson viewers...
The Matthew principle
Matthew 13:12
marx had as an economist a truly different "paper clip ", the invisible hand and the surplus value , unfortunate for the over 100 million killed in USSR and China over the last 100 years.
Actually the Pareto distribution is a lot more complicated than an 80/20 rule....
The actual formula for this distribution is
The square root of the number of participants contribute 50% of the production.
If you have 100 people then 10 of them produce 50% of the results. This concept is actually one of the most misconstrued concepts in statistics. The 80/20 rule is like a guideline but not an absolute. People misinterpret this all of the time. It is a more horrible problem than we can even fathom and it is the reason that there are hierarchies where people stack up at the bottom.
It simply happened that
Useless information to explain why the rich get richer.
No, it's barbecue 20% of the paperclips are workaholics who would work day and night and have no weekends.
The rest of the paperclips would not even want the lifestyle of these 20% paperclips.
and it's not only how much they work, but that they are very efficient, to a level that blows your mind.
Poor illustration
Terrible explanation.
I think this happens because of convenience of choice, people want simple and easy way and so they choose what's the biggest, popular name in mind and take that decision.
In other words we could say that they pick the long chain of clips.
Roxanna Camille, to what you infer is known as mere-exposure effect. Propinquity, perhaps.
true
Yep, it’s dressed up as some complex mathematical paradigm, but it can be so simple