5/27/09 - the 80/20 rule

In today's excerpt - the 80/20 rule, the expression commonly used to state that a small percentage of the total of any set, accounts for a large percentage of the output or effect of that set:

"Have you ever heard of the 80/20 rule? It is the common signature of a power law—actually this is how it all started, when Vilfredo Pareto made the observation that 80 percent of the land in Italy was owned by 20 percent of the people. Some use the rule to imply that 80 percent of the work is done by 20 percent of the people. Or that 80 percent worth of effort contributes to only 20 percent of results, and vice versa.

"As far as axioms go, this one wasn't phrased to impress you the most: it could easily be called the 50/01 rule, that is, 50 percent of the work comes from 1 percent of the workers. This formulation makes the world look even more unfair, yet the two formulae are exactly the same. How? Well, if there is inequality, then those who constitute the 20 percent in the 80/20 rule also contribute unequally—only a few of them deliver the lion's share of the results. This trickles down to about one in a hundred contributing a little more than half the total.

"The 80/20 rule is only metaphorical; it is not a rule, even less a rigid law. In the U.S. book business, the proportions are more like 97/20 (i.e., 97 percent of book sales are made by 20 percent of the authors); it's even worse if you focus on literary nonfiction (twenty books of close to eight thousand represent half the sales).

"Note here that it is not all uncertainty. In some situations you may have a concentration, of the 80/20 type, with very predictable and tractable properties, which enables clear decision making, because you can identify beforehand where the meaningful 20 percent are. These situations are very easy to control. For instance, Malcolm Gladwell wrote in an article in The New Yorker that most abuse of prisoners is attributable to a very small number of vicious guards. Filter those guards out and your rate of prisoner abuse drops dramatically. (In publishing, on the other hand, you do not know beforehand which book will bring home the bacon. The same with wars, as you do not know beforehand which conflict will kill a portion of the planet's residents.)"


Nassim Nicholas Taleb


The Black Swan: The Impact of the Highly Improbable


Random House


Copyright 2007 by Nassim Nicholas Taleb


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