Mental Model Fundamentals: Pareto Principle (The 80/20 Rule)

A large amount of a phenomenon is often created by a small amount of the causes.

“The Pareto Principle states that 80% of your results come from only 20% of your efforts. The principle is initially credited to Vilfredo Pareto, who noticed back in the early 1900s that 80% of Italy’s land was owned by 20% of Italy’s people. In business, for instance, this means 80% of your profits come from 20% of your sales.” (Source)

“Most things in life are not distributed evenly.” (Source)

Related Examples:

• Customer Service - “80% of the complaints come from 20% of your customers.” (Source)
• Software Engineering - “80% of the program’s functionality comes from 20% of the developer’s efforts.” (Source)
• Distribution of wealth in a market economy (measured by the Gini coefficient)

Related Concepts:

• Sensitivity Analysis - Delineate how uncertainty in a system’s outputs is driven by uncertainty in its inputs.
• Power Laws - Nonlinear relationship between two quantities, where one varies with the other’s exponent.
• Leverage - With the right levers, a small amount of input can create a lot of output.
• Proximate vs Root Cause - The proximate cause is the easily blamable symptom, while the root cause is the ultimately responsible disease.
• Sturgeon’s Law - 90% of everything is crap, and it is the 10% that is not crap that is important.
• (Customer) Segmentation - People have different needs and wants, so there is probably not a single best answer for everyone.
• Occam’s Razor - Simpler explanations with fewer assumptions are more likely to be correct.
• Catalysts - Substances that begin, maintain, or accelerate a reaction.
• Ninety-Ninety Rule - “The first 90% of the code accounts for the first 90% of the development time. The remaining 10% of the code accounts for the other 90% of the development time.”
• Price's Law - “The square root of the number of all authors contribute half the publications in a given subject.”
• Signal vs. Noise - “A signal is an information carrier which is a space and time-varying quantity and is used to send the information it carries. Noise, on the other hand, is any unwanted sound or effect on signals.”

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