Pareto Principle : 20% of inputs generate 80% of results

This principle stems from research and observations made by Vilfredo Pareto, an Italian-born economist. Pareto observed that 80% of land in Italy was owned by 20% of the people. While the principle may have originated from the study of the distribution of wealth across a population, it has been expanded in application to many fields. The usefulness of the rule has expanded as further research has shown that the ratio can be even more exaggerated in many cases. For example it is the same principle only more pronounced when 5% of inputs produce 95% of the output. Regardless of the exact percentage in a scenario, this 80/20 ratio provides a powerful and simple concept for analysis from finance to engineering to every-day life. Pareto Guide appreciates, celebrates, and applies this principle and invites you to do the same. You can start if you'd like by appreciating a short bio on the man for whom the principle is named.

Vilfredo Pareto

Vilfredo Pareto was born into nobility on July 15, 1848 in Paris.  His grandfather received the distinction of nobility from Napoleon.  At 22 years old Pareto started his career as a consulting engineer for the railway.  In 1874 he became the general superintendent of three iron mines owned by the National Bank of Florence.  His interest in economics grew during this time.  He noted economic theory was heavy on literature but light on science.  In observing practical applications he was disgusted by the restraints placed on free enterprise as governmental bureaucracy increased its regulation and management of business.  He ran for political office on a platform of free-enterprise and lost.

In 1882 his father died and left him with a small inheritance.  He retired with his wife and mother to Florence where he embarked on a 12 year endeavor to obtain a professorship of economics in Italian academia.  During these years a friend connected him with a reputed Swiss economist, Leon Walras.  Walras was the chair of political economy at Lausanne.  When asked to name his successor in 1894, he designated Pareto.  Pareto relocated to Switzerland, never to reside in Italy again.  He held the honors afforded by his social status and the plutocratic democracy of Italy in contempt the rest of his life.  In 1907 Pareto received another more substantial inheritance from another branch of his family.  He had already settled in Celigny near Geneva, Switzerland.  Despite his success and monetary fortune he was known by his friends as indifferent to external trappings.  One anecdote commonly shared was that he wrote the entire book “The Mind and Society” (approximately 500 pages) in the same pair of shoes and suit of clothes.  “The Mind and Society” is the English title of the translated work in which the Pareto Principle finds its origin.  Vilfredo Pareto died in Celigny on August 19, 1923.