The 80-20 Rule Explained (Pareto Principle)

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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[MinionNoMore]

< 20% of the strippers in a strip club earn 80% of the money :)

[onlyonemitch]

80% of this is gibberish while 20% of this is good enough to help me pass

[johndough]

The Download Principle says that 99% of any download will come from the last 1% of the process.

[lernealbanisch]

I am impressed by the illustration of the Pareto Rule using paper clips

[LiquidDrumnBreaks]

The vital few and the trivial many - this principle could be applied to anything.

[pascalbro]

Someone dropped this term in a conversation regarding socialism. This video helped a lot understanding the principle. Thank you.

[bentupper]

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.

[oakmeal]

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."

[gregbrown]

I apply Pareto principal to everything in life.

[toomuchtruth]

This explanation is awesome in its succinctness. Thanks.

[RedappleOfficial]

20% of the people poop 80% of the waste.

[cliffordhodge]

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.

[cleanyourroom]

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.

[gcinangcamphalala]

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.

[Scotts-Thoughts]

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.

[INFINITYXHOUSE]

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?

[cirosuperiore]

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.

[SevenDeMagnus]

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?

[datvuong]

is it going to exactly 80/20 or we can have 79/21?

[realazn]

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