The Pareto Principle

Abstract

The Pareto Principle (also known as the 80-20 rule) states that for many phenomena, about 80% of the consequences are produced by 20% of the causes. In this article we discuss the Pareto Principle and its importance in real life problems, describe some mathematical model related to it and also address the concept of the Lorenz curve and Gini coefficient. We tested two sets of real life data to see if the Pareto principle applies to these aspects. For the Forbes list in 2012, we found that 20% of the richest people own 56.72% of the money. For the world Gross Domestic Product (GDP) in 2011, 20% of the richest countries in the world have 91.62% of the total amount of money.