Understanding the Pareto Principle (aka the 80/20 Rule)

Ah, the Pareto principle.  What exactly is it, and why are so many people enamored with it?


In the early 1900s, an Italian economist named Vilfredo Pareto noted that 20% of the Italian population owned 80% of the land in Italy.  

He also noticed that in his own garden, 20% of his pea pods held 80% of his entire pea crop.

Thus, in Vilfredo Pareto's brain, a light bulb went on, a connection was made, and the Pareto principle came about.


(Most of us are not fortunate enough to have a principle named for us after we connect any sort of random idea to another one that pops into our heads.  Whew.  Otherwise we'd have a lot more principles to have to study.)


The current popular version of the Pareto principle goes something like this: "about 20% of the input creates 80% of the result."


This idea has caused a lot of commotion in areas like business and self-development.  If you really sit down and think about it, the Pareto principle (also commonly referred to as 'the 80/20 rule') allows for a distracted, thinly-spread individual to better focus his or her time and efforts on the things that will garner the most efficient outcomes.  These days, a lot of people are distracted, overwhelmed, and spread too thin, which is why this principle really has resounded with the general population.


There's nothing wrong with using the Pareto principle as an enlightening, paradigm-shifting guide to pinpointing our most successful endeavors and cutting out the less useful stuff from our lives.  In fact, it's a pretty good principle to use when examining a cluttered lifestyle.  


The problem, however, lies in a commonly misunderstood interpretation of the 80/20 rule.  Remember, we're dealing with inputs and results, or causes and effects.  Because of this, we can't illustrate the Pareto principle in one graph by itself.  While 80 plus 20 conveniently adds to 100, and we're also dealing with percentages, it doesn't mean we're comparing the same things.  As a result, it's inaccurate to try to depict the Pareto principle with a single pie chart.

Really, it's important to remember that the Pareto principle is more of a rule of thumb than an exact mathematical statement.  It's a great reminder that not everything in life is evenly distributed.  

As a student, you can use the 80/20 rule in a lot of ways.  Especially when studying (cramming) for an exam.

Don't pull multiple all-nighters and try to memorize every single thing that was covered in class.  Instead, go back over the syllabus and class notes to find out the areas that make up the majority of what you'll be tested on.  Find that 20%, and spend most of your time studying those areas in depth.  You might be pleasantly surprised to find that a majority of the exam tests you over the 20% material that you happened to study.  


Again, the idea that 80% of the results come from 20% of the efforts is mostly just a rule of thumb.  But when applied to general issues in life, like studying productively, the Pareto principle can really help you focus and improve your results.  

References: 


Kelly, Mark. "The 80/20 Rule of Software Development." VCE IT Lecture Notes. McKinnon Secondary College. Accessed June 28, 2012.


Kibbe, Andre.  "The 80/20 Rule Revisited." WorkAwesome.com. Accessed June 28, 2012.


"Understanding the Pareto Principle (The 80/20 Rule)." BetterExplained.com.  Accessed June 28, 2012.


Wikipedia. "Pareto principle." Accessed June 28, 2012.

The Scarcity Problem

The fundamental problem (sometimes referred to as "the economic problem") that economists study is one of scarcity.

Scarcity itself can be defined in several different ways (limited resources, having to make a choice between alternatives, etc.), but its meaning is always the same:

That's it.  It's really no more or less than that.

Scarcity is also a concept that varies depending on the situation.
For example, in the desert, water is a scarce resource, because there isn't enough to go around.

But in, say, a swampy area, water is not a scarce resource.  In fact, something completely different, like dry ground, could be considered a scarce resource in a swampy environment.

Regardless of the specific resource, scarcity necessitates choice.  That is, because a resource is scarce, a decision maker must choose between two or more alternatives.  You can't have your cake and eat it too.

In a decision-making situation, sometimes there is more than one scarce resource.  For example, instead of buying several different kinds of deodorants at once, you might only be able to choose one type of deodorant.  This could be because your money is scarce, but it could also be because your space is scarce, too.  Perhaps your bathroom medicine cabinet only has room for one stick of deodorant, so you can only buy one stick at a time.  

For most of us, money is a scarce resource.  In fact, scarcity of money is the reason many people develop budgets, or consult financial planners.  These tools and services are used in order to figure out how to best allocate limited funds.  

It's interesting to take this (simplified) view of scarcity and apply it to everyday life.  You might be surprised at some of the crazy ways scarcity emerges, and how much it influences the decisions we all have to make on a daily basis.  Scarcity, essentially, is what economists study.  It's basically what you're studying in most economics classes, whether you like it or not.  

Ray Bradbury and the Economic Impact of Libraries

Ray Bradbury died Tuesday at the age of 91.  In 1953, he wrote Fahrenheit 451, which is one of my all-time favorite books.  

Bradbury, who was always an ardent supporter of public libraries, had this to say about them: 

"Without libraries, what have we?  We have no past and no future."

In honor of Ray Bradbury's legacy, today's topic is...

Public libraries have existed in the U.S. for a long time.  In fact, Benjamin Franklin founded the first public lending library in an effort to make educational texts available to his colleagues.  After that, libraries were viewed as a portal to information, education and the outside world.  In that sense, they were very powerful institutions.

Things changed, though, especially with technological advancements.  The internet, in particular, makes it easy for people to find information about the outside world without even having to set foot in a library.  Does this mean libraries are less useful now than they were before?  

Well... 

This makes intuitive sense, because the emptier people's pockets become, the more likely they are to head to the local library to use its free (or low-cost) services.  It's much cheaper to borrow a book from a library than to buy a brand new one, right?  For the many people affected by the recession, visiting the library becomes an attractive option.

Still convinced that nobody is visiting the library?

That's well over the majority of adults in the U.S. - an enormous proportion of the population.  All library users.

This means that these libraries are providing a means for community members to access the wealth of information that the internet has to offer.  That is a big deal, especially if there aren't any other ways for people to get online in the area.

Hurricane Katrina victims who were able to search online for aid received help faster than those who could not access the internet.

Libraries are used by all different types of people, from those who are impoverished, to retirees, to college-educated individuals.  As a result, they serve all sorts of purposes.

So a majority of library visitors are there to help someone else?  Sounds like a community-oriented place to me.

A third of all public library patrons use the library to become healthier and/or more active members of their communities.  This has a positive impact on overall community development.  Community-oriented?  Of course!

So aside from all the other great stuff that public libraries offer, it's also a place where people can learn about and organize their personal finances.  This is incredibly important, especially during difficult economic conditions, when being organized with money can mean the difference between getting bills paid or not.

Speaking of paying the bills...

It's true.  And it's not a bad return on investment, if you compare it to alternatives like the stock market or current interest rates.

Ultimately, public libraries positively impact the communities in which they serve.  By keeping public libraries useful, comprehensive, and well-funded, Ray Bradbury's legacy survives.  

Support your local library!  (And read Fahrenheit 451 if you haven't already.  It's a quick and relatively painless book to read, and you'll be glad you did.)

References used in this presentation:

American Library Association.  "Library Fact Sheets."  Accessed June 6, 2012. http://www.ala.org/tools/libfactsheets

American Library Association.  "The State of America's Libraries, 2011."  Special report.  Accessed June 6, 2012.  http://www.ala.org/news/sites/ala.org.news/files/content/mediapresscenter/americaslibraries/state_of_americas_libraries_report_2011.pdf

Institute of Museum and Library Services.  "Public Libraries Survey, Fiscal Year 2009." June 2011.  Accessed June 6, 2012.  https://harvester.census.gov/imls/pubs/Publications/fy2009_pls_report.pdf

Institute of Museum and Library Services.  "Strategic Plan: 2012-2016." Accessed June 6, 2012.  http://www.imls.gov/assets/1/AssetManager/StrategicPlan2012-16_Brochure.pdf

Steffen, Nicolle and Zeth Lietzau.  "Public Libraries - A Wise Investment: A Return on Investment Study of Colorado Libraries."  Library Research Service, March 2009.  Accessed June 6, 2012.  http://www.lrs.org/documents/closer_look/roi.pdf

Washington State Library.  "Report on Public Library Usage Stats During Recession (2009)."  Accessed June 6, 2012.  http://www.sos.wa.gov/library/ReportonPublicLibraryUsageStatsDuringRecession2009.aspx

Historical (Economic) Perspectives of the Family

This is the lecture (given in an undergraduate Family Economics course) that started it all.  

The "traditional" (or nuclear) family has been viewed historically as consisting of a father (male, head-of-household, husband), mother (female, wife), and children.  

Throughout history, everyone in the family worked collectively to feed, clothe, and sustain the family unit.  Having lots of children meant that there were more people who could work to find food, maintain shelter and clothing, and basically keep everyone happy and fed.  A woman's fertility, then, was viewed as a blessing, and it was common for families to be large and for kids to have lots of siblings.

While it's true that the men typically did the hunting, while the females did the gathering and foraging, all members of the family were actively engaged in improving everyone's chances of survival.

Actually, large families where every family member helped out with finding food and keeping everyone happy were pretty common for a long time.  Sustaining a farm or a homestead required a lot of work, which involved the entire family, including children.  (Also, I meant to draw a buffalo but I've only seen stuffed ones in museums and my attempt at a buffalo basically ended up looking more deer-ish than anything else.  Sorry.)

In the United States, after the Civil War, the Industrial Revolution brought on technological advancement that really changed the way families were constructed, and how they operated.  

In fact, the Industrial Revolution spurred a change in the traditional economic roles of men and women.  The roles that women and men assumed in the family became more separate and rigid.  Women were housewives and maintained the home and everything in it (including the children), while men were wage earners and spent the majority of their time outside the home, earning money.  

Technological advancements, like the washing machine and refrigerator, significantly reduced the amount of time it took to do daily household chores.

So the technological advancements freed up the housewife's time in the home, but because the economic roles were still rigid, the extra free time translated to improving things around the home.  That's why we see an abundance of advertisements displaying products that promise "whiter whites" or "tastier pies" in the decades following the Industrial Revolution.    

These technological advancements also led to a decrease in the economic value of children.  This doesn't mean a decrease in the value of children overall; it just means there was a decrease in how useful the kids were in maintaining the economy of the family.  

This spurred a decrease in fertility (meaning it wasn't as attractive for women to have tons of kids anymore to help out around the house or farm).  It also influenced an increase in the length of time that children spent in school.  

With less children to care for, and fewer chores to do, the household 'sphere' in which so many housewives operated began to shrink.

This facilitated a movement of many women from the household into the labor market, and there was an increase in the amount of women who worked outside the home.

Right after the American Civil War, in 1870, few women worked outside the home.  Those that did were employed in occupations that were low-paying.  Many of the women who worked during this time were poor, minority, or immigrants.

A hundred years later, over half of women in the United States were members of the labor force.  This happened due to an increase in the real wages of both men and women, and an increase in the value of a woman's time.  Essentially, a woman's time was now too valuable to spend it all in the home, doing housework.  So more women started entering the labor market.

With more women going into the labor market, there was an increased demand for childcare services.  Additionally, researchers found that divorce rates increased as more women entered the labor force.  All these changes put new stresses on families.

As a result, the government implemented public policies to address these new stresses on families, including public policies on childcare, parental leave, child support enforcement, and women's labor market earnings.   

These public policies had an impact on the economic well-being of families.

The public policies helped to increase the number of dual-earner families, where both the mother and the father work outside the home.  The policies also improved the well-being of female-headed families.  Both of these types of families have become common in today's society.  

These public policies also attempt to counteract the feminization of poverty in the United States (i.e., the situation where a disproportionate amount of women find themselves below the poverty line).  

[Want the powerpoint file of this presentation?  Email me.]

References used when creating this presentation:  

     Becker, Gary.  1991.  A Treatise on the Family.  Harvard University Press.  

     Beller, Andrea.  2011.  "Historical Perspectives of the Family." Lecture Outline. 

 

My Philosophy on Wikipedia

Wikipedia, as a whole, rocks my face off.  I could probably spend entire days on it, looking up stuff.  In fact, this panel from one of my favorite webcomics, xkcd, pretty much sums up what happens when I haplessly venture over to Wikipedia's dark side.


In my opinion, Wikipedia is an excellent tool to use to familiarize yourself with a topic.  

Thank god for Wikipedia.  Many a sleepless night has been thwarted by its impressive powers of encyclopedic instruction.  There is nothing like a quick Wikipedia check to elicit a soothing "oh, so THAT'S what Professor Dingleberry was talking about when he mentioned fiscal policy..."


Wikipedia is collaboratively edited, and therein lies its double-edged sword.  Anyone who cares about a particular topic can edit it.  This implies that popular topics will have more editors, which lead to more editing and more accuracy.  Hooray!  The power of the market prevails!


Unpopular topics, however, won't have as many editors.  Idiots and/or people with personal agendas can edit these topics and will encounter fewer arguments about their contributions.  It's possible that with these topics, some jerkwad could post incorrect information, and nobody would care to say, "hey, wait a minute.....you're WRONG" until it's too late and thousands of tired students had already used the (wrong) information in a paper due in 4 hours.

The other thing that you need to remember, as a tired and desperate student, is that as stupid as Professor Dingleberry might seem, he's probably read the Wikipedia page on fiscal policy.  In fact, he might have written or edited some of it himself.  So if you slip up and write your whole paper based on the one Wikipedia article when he asked for 4 or more sources, you're pretty much slitting your own throat.

Again, Wikipedia is an excellent tool for getting familiar with a topic.  It even lists more specific sources under "External Links" at the bottom of the page.  These links could well be your lifeline.  They are the connection to the meat and potatoes of your research.


It's true.  In the eyes of your professor, bothering to click on a link that Wikipedia referred you to, and then using the information you found from that link in your paper*, could catapult you from the mediocre masses to the elite, successful paper-writing few. 


See?  Taking that extra step is easy and (relatively) painless.


And THAT'S why Wikipedia is such a double-edged sword....so incredibly useful and yet so dangerous.  

So wield the Wikipedia sword with care!  And for god's sake, don't use it to plagiarize.  


*(And always remember to properly cite your sources!)   

The Ceteris Paribus Fairy

This is how I think about the concept of ceteris paribus in economic thought.  It’s a nice way to make things work out swimmingly, but reality often paints a different picture.  Fairies are a convenient mascot for something like this.

Sometimes the Latin translation varies depending on the source, but the meaning is the same.

The first econ professor I ever had referred to ceteris paribus as “KET-err-iss”, and I can’t seem to quit pronouncing it like that, even though it’s not the correct Latin pronunciation.

 It’s not bippity boppity boo or anything that amazing, but still.

Ceteris Paribus Fairy doesn’t care about sexiness.  Might he need a shave and a gym membership?  Perhaps.  But who are we to judge?

Again, he’s not turning teeth into money or anything that amazing.  
But it’s still an important power to wield, at least in economics.

Really, he is.

Without the magical presence of the Ceteris Paribus Fairy, Hootie is not a good dog when he goes on walks.  
In fact, most of the time, he is a complete spaz on walks.  

That's because without the Ceteris Paribus Fairy around to hold all other variables constant, Hootie (the well-meaning dog that he is) is easily distracted.  And my chances of being dragged along as he chases a squirrel up a tree are increased.  By a lot.  

In essence, the Ceteris Paribus Fairy allows us to make predictions with confidence about Hootie’s behavior during a walk, regardless of the environment or circumstances. 

"What gives?" you might say.  Why even bother with the Ceteris Paribus Fairy when he never seems to be around in real life?  


Well, the answer is because he's an essential part of basic economic theory.  And if you, a hapless student of economics, refuse to believe in the existence of the Ceteris Paribus Fairy, you'll doubtlessly end up thinking too much about what else could happen in the situation at hand.  It's a flaw most smart, logically-thinking people fall into.  On economics exams, it often results in wrong answers and bad exam grades.  


So go ahead.  Take advantage of the Ceteris Paribus Fairy.  In fact, he wants you to.  Really.  And your grades might just thank you for it.  

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