Most of us would have heard about the Pareto’s 80/20 principle. The 80/20 rule is a principle created by Italian economist Vilfredo Pareto. This is a mathematical formula he used to describe the unequal distribution of wealth. Pareto observed that twenty percent of the people owned eighty percent of the wealth.
This rule can be widely used elsewhere. 80% of results come from 20% of effort, 80% of problems come from 20% of causes, etc….
Early in the morning today I got to read ‘Black Swan’ by Taleb and he claims 80/20 and 50/01 are the same. I was a bit of shocked as I have been using this principle for quite sometime in my thought process. Suddenly felt the world was more unfair due to this inequality. The fact is that inside the 80% effects, 80% is due to 20% causes.
Heart failed to accept but the fact is that it is. Sometimes you don’t trust yourself and you need excel to help. How come I didn’t even realize this. I reviewed all my past analysis and its true or sometime even worse. There is this critical 1% that decide more than 50% of the outcome .
Still felt something was wrong and tried to apply this for process models. I realized a fundamental flaw. The causes and effects are limited to what we can observe or observed. This took me back to Black Swan theory. There are always hidden black swans that would make the effect of observable causes Infinitesimal.
Its one is a Googol that decide events!
Leave a Reply