The Axiom

Vilfredo Pareto (1848-1823) was an economist who explored the “law” of income distribution which is to be known as “Pareto’s Law,” “Pareto’s Distribution,” and recently became popularly known as the “80/20 Principle.”

The mathematical formula he used was to demonstrate a predictable distribution of wealth in society-80% of the wealth and income was produced or possessed by 20% of the population. This principle was also applied outside of economics also. Some examples are:

80% of peas are produced by 20% of the pea pods.

80% of the consequences flow from 20% of the causes.

80% of the stock market gains are realized by 20% of the investors.

The list is infinite when relating this principle to the world. You can see it in a large picture in an economic structure or in a business where 80% of profits come from 20% of the products and customers. On a small personal level, you can see it in your production where 80% of the results come from 20% of the effort and time.

In a movie, the distribution was even applied to an interesting yet humorous smarts-to-look ratio when observing a person’s attributes. A character in the movie explains to another “the rule” when looking for an intimate partner, where a person who is good looking (80) will not likely be too smart (20). Visa versa, A person who has brains (80) will not likely have the attractiveness (20). A comical appliance but yet relative in essence.

In all, Pareto’s Law can be summarized by 80% of the outputs result from 20% of the inputs.

Pareto’s Principle can be applied practically in life in a wide range of things. Such as losing weight and achieving a fit physique. By understanding what works and what doesn’t in dieting and/or exercise, it is possible to achieve your goals with minimal time and effort (blog coming soon). In the read Lack of Time = Lack of Priorities, it goes more into detail of how you can apply this axiom to help you be more productive and even free up the time to live your life doing things that matter most.

The Ratio

Interestingly this ratio holds true even beyond an input/output formula. The ratio is sometimes skewed to 90/10 or 75/25, but the minimum of 80/20 is held. If you were to take a look at groups, organizations, or any population, there is a general division within that usually, holds the ratio. In America there is the working class (80) and the rich class (20). In businesses, there are the C.E.O’s (20) and there are the workers (80). In school, there are the average students that make up the majority, and there is the above average to “overachievers” that makes up the minority.

In the book The Dumbest Generation by Mark Bauerlein, it argues that there is a likely upcoming of a generation of know-nothings which would make up the majority of the population, and there will likely be a lesser group made up of the knowledgeable. See the ratio? Also notice that it is likely the minority, at least in these examples, will become the 20% part of Pareto’s formula.

The Shift

“You all laugh at me because I’m different, but I laugh at you all because you are all the same,” -unknown

Why does this phenomenon happen with people? Most people tend to do what others do whether or not it makes realistic sense. This happens out of fear and other psychological factors. It is out of most people’s comfort zone to be different and go against the grain of the majority, resulting in most people thinking alike and being similar in certain aspects.

In the stock market, the statistic is that 95% of people who trade in the stock market lose money, according to a successful analytical trader of the markets. This is because most people who trade use the same mediums, techniques, and information as each other. The blog The Wealth Axioms explains more into detail of this and contains practical axioms that may be used to gain potential wealth.

With this reality, it results in a reason why not everyone is able to be rich, wealthy, or able to “rule the world.” The quote “you all laugh at me because I’m different, but I laugh at you all because you are all the same,” comes to mind and seems to fit well in perspective.

Although some people yearn to be different and succeed past others, being a creature of habit with emotions of fear and the difficulty to change, it is challenging to be a part of the 20%, if not already part of it.