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Tuesday, September 25. 2018

The Pareto Distribution


Aka "The 80-20 Rule" aka The Matthew  Effect (from the parable of the talents).


Much as we might wish that most things fit Gaussian "normal" distributions because it's easy to visualize, they do not.  Some college-level math underpins the Pareto distribution, but more interesting than the income and wealth distributions it describes are all of the other psychological (including intelligence), geological, and other natural effects which it predicts.


Do we have a Pareto expert among our readers? 

Posted by The Barrister in The Culture, "Culture," Pop Culture and Recreation at 14:25 | Comments (16) | Trackbacks (0)

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20% of membership in a voluntary group, say, a church, does 80% of the work.

I would be cautious about national vanguard. They hit on some subjects, and this may be one, but they are quick to accuse and blame.
#1 Assistant Village Idiot (Link) on 2018-09-25 15:03 (Reply)
Dumped that link even tho I thought it was accurate. Editor's choice.
#1.1 Bird Dog on 2018-09-25 16:42 (Reply)
The top sites get all the traffic. It's why breaking up or regulating google makes sense as monopoly-breaking.

All the traffic goes where all the other traffic goes.
#2 rhhardin (Link) on 2018-09-25 15:06 (Reply)
Especially because search engines often give more weight to a page that gets more links (at least I've heard that Google used that criteria though it maybe more sophisticated now)
#2.1 Christopher B on 2018-09-25 15:15 (Reply)
Of note, the Pareto Distribution is scale invariant.
#3 Zachriel on 2018-09-25 15:35 (Reply)
I tend to keep my spare change as it become too heavy to carry on your person. Unfortunately I have had to "hide" that collection as my spouse tends to claim my spare change collection and use it all up before I can cash it in.
#4 JC on 2018-09-25 15:36 (Reply)
Gets used all the time in manufacturing and software development:

20% of operations cause 80% of process variation
20% of code contains 80% of the bugs
20% of workers take 80% of unplanned time off
20% of policy holders genereate 80% of claims

and in Project management:
the first 20% of tasks consume 80% of the project schedule. The remaining 80% of tasks consume another 80% of the project schedule
#5 Another Guy named Dan on 2018-09-25 16:31 (Reply)
And in the software development world, the end of that 20-80-80-80 exercise is signaled by the end user, who discovers that he forgot to give you 20% of his requirements. Rinse, lather, repeat.
#5.1 Mike Anderson (Link) on 2018-09-25 20:51 (Reply)
Related: Price's Law
https://en.wikipedia.org/wiki/Derek_J._de_Solla_Price
There are different iterations of this principle:
50% of the work is done by the square root of the total number of people who participate in the work.
Half of the literature on a subject will be contributed by the square root of the total number of authors publishing in that area.
For example: a company has 100 employees. Price's Law states that 50% of productivity results from the efforts of just 10 of the employees.
That's how i heard it anyway. I don't know if this is empirical or not.
It is slightly different than Pareto, but along the same lines.
#6 Mark on 2018-09-25 21:24 (Reply)
No expert, but Pareto is essential in understanding or learning Economics.

Pareto Optimality points out that perfection isn't really the goal, but a 'near' perfection is possible. The cost of reaching perfection is more than the benefits it provides. Another way of describing this is Pareto Efficiency - there is no change in distribution which can take place that makes someone better off without making someone worse off.

Got into a tiff recently with the wife discussing this concept. She called it the "80-20 Rule" to which I replied "Pareto Efficiency". Her response was the name didn't matter, I explained that, in a way it did. There's more to Pareto than just the 80-20 Rule. It's a rough guide, often incorrect, but directionally correct. Having a better understanding of Pareto is useful so you don't fall into a trap of believing the rule of thumb.

Pareto Efficiency isn't one thing. It's a frontier. There are many potential outcomes - but theoretically, each one is the 'same' in terms of efficiency. It assumes perfect information, and no externalities.

Accounting for lack of perfect information and external influences (which are, of course, realities) means the frontier is rarely a straight line or curve as it is often depicted. This leaves the door open for policy-makers to step in and claim policy can 'improve' outcomes. In reality, policies can't improve incomes. They can FEEL improved and people may believe they are, but a Pareto Optimality is what most would call "equilibrium".

Since equilibrium is not one thing which never changes, there's often a series of discussions which take place around the concept. So emotions run high, and policy makers rely on this fact to continually play their role.

It's a moving target, basically, which is often achieved, but never recognized of having been achieved as people tend to believe they can "always do better".
#7 Bulldog on 2018-09-26 06:41 (Reply)
Bulldog: This leaves the door open for policy-makers to step in and claim policy can 'improve' outcomes. In reality, policies can't improve incomes.

That conflates policy with allocation. The former may certainly improve overall efficiency.

If there is one pie divided among three people, and two of them each have half the pie, while the third has none, that is Pareto Efficient. (Redistributing the pie would require taking from the haves and giving to the have-not.) However, if the have-not is the pie-maker, it would be bad policy to let her starve. A fairer distribution would mean more pie for everyone over the long run.
#7.1 Zachriel on 2018-09-26 11:42 (Reply)
Along the same lines, with the same pie and same three people, if each person had a quarter pie, and a quarter pie was wasted, it is not Pareto efficient; but it would be better policy, as the pie-maker would not starve and could then make more pies.
#7.1.1 Zachriel on 2018-09-26 12:49 (Reply)
Wow.
You really are an idiot.
I won't even respond with a thoughtful response, because you didn't put any thought into yours.
#7.1.2 Bulldog on 2018-09-26 13:09 (Reply)
Bulldog: I won't even respond with a thoughtful response, because you didn't put any thought into yours.

You can be sure that impartial readers will be persuaded by the power of your argument.
#7.1.2.1 Zachriel on 2018-09-26 13:23 (Reply)
There are other curves (including simpler ones, such as arcsine) that could describe the same kinds of one-tailed distributions.
#8 Bruce Anderson on 2018-09-26 08:58 (Reply)
People talk about the Pareto effect as if it meant that 80% of human beings are irrelevant. The fact is, for any particular group and any particular function you're interested in, 20% of the group may turn out to be the ones that matter. But there are other groups and other functions. Maybe a small fraction does the important R&D work, but someone else has to answer the phones, construct the office building, and so on. We can give respect where respect is due to each task without pretending that everyone is equally good at every task, or that every task is exactly an important as every other task in every context.
#9 Texan99 on 2018-09-26 11:19 (Reply)

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