Pareto Principle - January 24, 2024

EPISODE TRANSCRIPT

It's the Pareto Principle. My buddy Vilfredo. My guy Joey Duran.

80-20. 64-4. A little bit of that factor of sparsity.

All that and a good deal more, after the break. Welcome back all you beautiful people. We're talking the Pareto Principle. As always, I'm Nick. That's Erick. We're the Get Good Guys.

And this is the Get Good Guide. Get Good Guys. Ladies and gentlemen, it's January 24th.

Wednesday, our usual release time. And we're so happy to have you. Thanks for being here.

We are talking Pareto Principle. Pareto? Pareto. Pareto. Depends on where you're from and how you speak it. But it all... Like most things.

Like most things. I think it's a matter of perspective. We're talking about our guy.

Vilfredo Pareto. Vilfredo. I like that pronunciation.

I think we're going to go with that. Vilfredo Pareto. If you get an opportunity to make a name rhyme, I feel like you owe it to... Sure.

Reasonable. To the species. Yeah, we'll let his parents know.

Wasn't the first person to observe this, I'm sure. Probably not. But the first person or the maybe most famous person attributed with this observation of the 80-20 rule.

Yeah. He was an economist. In the very early stages of that profession.

Yeah. 1906-ish, I think, is when he wrote this. Yeah, late 1800s, early 1900s.

And he was an Italian. He was a socialist. And he was making an observation about wealth and wealth possession and land possession.

Distribution. Yeah, in Italy. But interestingly enough, not popular in his time.

It was popularized some three and a half, four decades later by our guy, Joey, by Joseph Juran. J-U-R-A-N. Who in 41, in the early 40s, World War II era, was an engineer and was trying to decrease defects in manufacturing.

And kind of stumbled across or came across this work by Vilfredo Pareto some years earlier. The so-called, what is oftentimes now referred to as the 80-20 rule. Yeah.

Yeah, and it's interesting. I wonder if his lack of popularity stemmed from where he was finding this information. Sure.

In that time period in Italy. And he's saying, he's from the social standpoint, and he's saying, hey, look, we have all of our, most of our wealth and land is owned by this small chunk of people. And I'm curious if that had anything to do with it.

But interestingly, we found out, he was the one to coin the term elite. Yeah, created the term. For, you know, like the upper level of society.

Which is interesting. Yeah, to realize that word is as young as it is. Yeah, I would have expected much, much older.

For sure, for sure. So that's two things that he created. You know, the Pareto principle, obviously, and then the word elite.

Pretty interesting. And the history of Italy is a long one, and it's one of extraordinary wealth concentration, right? You had the families of Italy that were effectively governments unto themselves, the Domenicis and so on. So that they had almost entire sort of city states.

So it's not unexpected that there would be this wealth concentration in a nation like Italy in a time like 1906. However, interestingly enough, as we've talked about in the past, the 80-20 rule, the Pareto principle, these are observable phenomena that you can see in a lot of different places. In fact, even today, wealth distribution remains the 80-20, globally.

Yeah, and we were talking about this earlier. I would assume that it's been that way since the beginning of time. Right, right.

That it could be that this sort of observable phenomenon just is when it comes to humanity. Yeah, that, to clarify, that 80% of the wealth of the globe is possessed by 20% of the population. And that holds true even today.

Yeah, it's interesting. It's really interesting. Moving kind of forward on our timeline, to our guy, Joey.

Joey Duran. Duran Duran. Solid.

It's a good bit. I don't have a punchline. Well, the problem is we can't quite put our finger on a lot of Duran Duran music, so that's a part of the issue.

Get in the comments. Give us a few examples. Go ahead and, you know what I want to see? Probably five to 50 puns based on Duran Duran songs about Joey Duran.

Would you say that, like, closer to five would be more correct for the 80-20 rule? I think probably that's true, right? You're going to have five good ones. Yeah, and then 40 bad ones. But let's talk about where we can observe this a little bit, this in nature, if you will.

We talked about Duran and his kind of development, manufacturing. That is a huge, huge place where it exists. Can we talk about Six Sigma we were talking about today? Sure.

Yeah, the Six Sigma principle. The idea of eliminating defect in a manufacturing process to the point where, and I don't have this right, but I think it is one in one million units. So the Six Sigma approach is out of one million manufactured units, only one will be defective.

But to reach that sort of incredibly lofty height, you would apply this principle, because the observation was that Duran sort of stumbled on was that 80% of the defects that are coming out of a manufacturing process can be tracked to 20% of the problems. And then interestingly enough, Microsoft used this as a stated principle in their debugging programming. So when they would produce a product, and then they would have, obviously, like a quality control team that was working on getting rid of the bugs, they found out that 80% of the errors that software would throw could be tracked back to exactly 20% of the code.

Interesting. Well, and that's cool, right? Like the manufacturing, where it's something you quantify. I mean, the wealth is something you could quantify too, but this is like actual numbers and data that you can just look at it on a piece of paper.

It's pretty interesting. And the interesting part for us is that it seems to hold true for effort on a grand scale or an individual scale. And I think that's where we find ourselves, speaking about it a lot, for the individual.

Yeah, definitely. There's also, there's a couple other places. Risk management is a big one.

OSHA uses this, the Occupational Safety Organization, the agency in the United States that covers sort of workplace safety, chases the 20%, you know, like doggedly to try to eliminate 80% of the risk. And then you see this also observable in group human dynamics, where you'll have, if you have 100 people in the room trying to achieve a task, oftentimes it will be 20 people who are outputting 80% of the effort or 80% of the outcome. Sure, yeah.

Even if they are all working equally. Right. They're all putting in 40-hour weeks.

It's 20% that are finding the way to contribute. Well, and I'm sure most people have experienced this, right, been part of some sort of group project where either they felt like, oh, I'm coasting a little bit, or they felt like they were doing all the work. Right.

Depending where you might fall on the scale at the time. Well, and there is a human bias called the self-serving bias, which also sort of, we attribute, the good things that happen, we attribute to our own individual efforts, and the bad things that befall us, we sort of attribute to bad luck or like a bad break. And so that can make, sometimes in a group, it can make that dynamic tough to observe.

You know, if you're in it. You're correct, from your viewpoint. Yeah.

Now, we talked about 64-4. You know, 80-20, that's like something you hear, even if you've never heard of Pareto. We came across 64-4, I think, kind of for the first time in preparation for this episode.

At least I did. No, definitely for me. Yeah, and so this is very simple, right? This is just the Pareto principle applied twice over.

Yeah. So if I say, okay, the 80-20 rule, I'm going to look for those 20% inputs, those 20% of factors, right? If I do that again and say, okay, well, what's 20% of 20%? Well, it's four. It's 4%.

Well, what's 80% of 80%? It's 64. And so there is kind of a movement out there that says, look, sometimes you don't have time for 20%. Sometimes you don't have the bandwidth or the resources for 20%.

Yeah, or don't want to put 20% towards that thing. Right, or don't need 80%. Right.

You just need 64%. And we were joking, you know, it's a D- on a scale, which is like, that does get credit in most courses. And so you sort of go, like, I just need to put my name on this test and walk out.

Yeah. Right? I need to not get a zero. Mm-hmm.

So it is kind of an interesting sort of tidbit. Well, yeah, and I wonder, you know, I wonder how far that would go down. You know? Hey, listen, let's do- Is there a 0.8? Yeah.

Yeah, definitely. Definitely. But yeah, it's interesting to explore.

And we explore this, you know, all the time in the guide. Yep. Right, about using our time and resources effectively towards that 20%.

Right. In order to gain that 80%. Absolutely.

Absolutely. And it's worth noting, right, this is, the Pareto principle is not a mathematical axiom. It's not as though, oh, this is a truth of the universe.

Conversely, it is observed, right? It is in the same way that the theory of gravity is still a theory, because you could try to disprove it, right, you could try to change it. The 80-20 rule of the Pareto principle is based on observation of data in multiple areas. Right.

So our claim is pretty robust in the guide. We sort of say like, hey, look, this works, right? This is it. This is what you, you know, that was not necessarily Pareto's claim or even Duran's claim.

But that kind of takes us to the last point, which is this idea of factor sparsity, which is it's not just do 20% and you'll get 80%, right? That's not the message of the guide. It's not the message of the Pareto principle. It's not the observations of the Pareto principle.

But rather, it's about factor selection, which is really all the guide is about. It's figuring out those factors. Well, and I think that's one of the issues with thinking of the 80-20 rule, as I would assume a lot of people think about the 80-20 rule, as I'm just going to do 20%.

Right. But that feels you're not going to get the 80% benefits from doing less, like just less work. Right.

You can't just randomly pick the 20%, right? It's got to be the correct factors. And Duran said he was getting a lot of his inspiration for a lot of his stuff from this Japanese Kaizen option, which is the same thing, right? They're identifying what the most important factors are and then from that, choosing what to adjust. Right.

And then once you do have the factors selected and you can test that hypothesis, now you go after those factors, right? Now with 100% of your effort, you're applying your effort to those factors. And so if ever you're in the guide and you're going, man, these guys really like talking about goal setting. They really like clarifying goals.

They really like paring down and paring away the non-essential. Well, yeah, because it is based on factor sparsity. It is seeking to help the user find those 20% factors.

Yeah. Well, maybe we'll talk a little bit in the Patreon because we're running short on time here about a little bit more of this factor of sparsity. And we were even talking about someone we know who's working on the guide and finding some ways to narrow their goal or specify their goal a little bit more so that it's more achievable.

Right. Absolutely. Absolutely.

All right, my friends. Well, thank you so much. And we will see you in the outro.

Well, gee, thanks, everybody. We sure do appreciate you taking the time. This has been the Pareto Principle here on the Get Good Guide podcast.

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Get Good Guide Let's get some levels. The Pareto has a principle. I once knew a man.

His name was Pareto.