Pareto Principle

80% of the effects comes from 20% of the causes. This distribution seems to repeat in many problem spaces where there is an imbalance between the inputs and outputs.

  • Advantages Accrue to the Leader

    Markets exhibit the Pareto principle in that most of the advantages accrue to a small number of players—mostly number one. These advantages include growing faster, network effects, recruiting the best people, expanding to new opportunities quickly and most of the 7 Powers.

  • Zipf’s Law

    Given a corpus of language the frequency of the frequency of a word (how many times it shows up in the corpus) is inversely proportional to it’s rank in the frequency table of words. For example, ‘the’ appears 2x as much as ‘of’ (7% of words, 3.5% of words respectively). This is another example of the Pareto principle.

  • The Economics of Superstars

    There are two common elements of economic superstars. First, there is a close connection between personal reward and size of the market. Second, there is a tendency for market size and reward to be skewed to the most talented people in the field.