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Vilfredo pareto; beginning 80-20

Because Few People Get It All – The Rule Of 20/80

While Vilfredo Pareto was collecting peas in his garden he noticed an interesting thing; Most peas were produced from a small amount of plants.

If you don't know Parato, he was a very mathematical person and also an economist. Unlike others in his field, he wanted to transform economics into science.

Indeed, his texts and documents are rich in equations. And the peas put his mathematical brain to work.

What if the same happened in other parts of life?

 

The Pareto Principle

Pareto in the distant 800 was studying the distribution of wealth in Italy and realized that 80% of the land was in the hands of 20% of the population.

As he continued with his studies, Pareto he discovered that the same thing was happening in other countries, most of the wealth was in the hands of a few.

The numbers were never the same, but the trend was remarkably consistent.

It seems that most of the reward always goes to a small percentage of people.

This idea that few people get most of the reward became known as the “Pareto principle” The “Law 80/20”.

 

Inequality Everywhere

With the passing of the decades, the Pareto principle opened the eyes of the world to this idea, people began to see this principle everywhere.

For example, in the small of domestic life it can be seen that people wear around the 20% of their clothes 80% of the time.

Try to think about this for a minute, you always use the same things even if you have cabinets full of stuff.

If we go to football, in the history of the championship the 18.8% of clubs won the 75% sometimes. Indeed, solo 3 football teams - Inter, Milan and Juventus - have won the 2/3 of the league titles in the last 100 years.

Like the Pareto garden, only some teams represent the winners.

But why some people, organizations and teams get most of the reward?

The answer lies in human evolution…

 

The Power of Accumulative Advantage

The rise to power of the human species in 200.000 years is a fascinating story.

Not only have we dominated all animal species but we have managed to make others extinct “homosexuals” who competed with us for natural resources.

When the Cro-Magnons (ancestors of modern men) they migrated north from the African Rift Valley to settle in Europe about 40.000 Years ago, this last continent was already populated by another race of hominids, i Neanderthal.

Within a few thousand years, the Cro-Magnon took over and wiped out the Neanderthals.

But how?

Imagine two newborn birds side by side. Every day they compete to get food from their mom.

If one manages to stretch the neck just a little more than the other, then it can receive more food and therefore become a little stronger than the other.

The next day, this additional energy allows the bird to receive even more food while repressing the other.

This vicious circle continues until the strongest bird dominates and gets most of the food.

From this vantage point, the bird manages to leave the nest in strength and dominate its environment.

It will thus be possible to mate with a dominant female, reaffirming its territory.

Scientists refer to this effect as “accumulative advantage”. What starts out as a small advantage gets bigger over time.

An individual, an animal or a species needs only a small margin at the beginning to get the upper hand over the competition and conquer its environment.

 

The Winners Get Most Of The Reward

The same happens in our lives.

Like the little birds, we too are in competition with others; Sportsmen compete for the gold medal, politicians for votes, companies for clients and men for the most beautiful women (I meant nicer).

The differences can be tiny, almost irrelevant, but the winners get most of the reward.

Imagine a track cycling race, the difference between winning and second place could be 1/100 second, but the winner takes the gold medal and millions of Euros from the sponsors.

The Winners Get Most Of The Reward

You just have to be a little better than the competition to guarantee yourself the full prize.

Perhaps you are applying for a new job by competing with hundreds of candidates for the same role, but being slightly better you earn the position.

These situations where a small difference in performance leads to disproportionate rewards is known as “The winner takes it all”.

They usually occur in situations that involve confrontation, where your performance relative to those around you is the determining factor in your success.

The advantage of being a little better is not an extra reward, but the whole reward.

The winner gets one and the rest gets zero.

 

From the Winner Who Takes It All to the Person Who Takes the Most Reward

So far we have talked in terms of individuals and individual events, but the same principle extends to people or groups who win in the larger game of life.

You may have noticed that there are people who get it all “apparently” easily. What is less noticeable is the snowball effect obtained thanks to the winnings.

Snowball effect; because few take everything

For example; An investor who invests 100.000 Euro in a fund that makes it the 7% per year, after the first year he receives 7.000 Euro in interest which adds to the principal.

The second year starts from 107.000 Euros that make it 7.490 Euros in interest, rather 490 Euros more than in the first year.

Over time, the return on investment grows disproportionately like a snowball that becomes an avalanche.

What begins as a small margin tends to move towards the rule 80/20.

If a company has better technology than the competition, consumers will buy more of its products.

Since the company earns more, can invest in additional technologies, pay higher wages and hire better people.

By the time the competition catches up with them, consumers have become loyal customers and are unlikely to switch to competition. Presto, this dominates the market.

What is hard to notice is that the margin between excellent and excellent is narrower than it seems. What starts out as a slight competitive advantage, with the passage of time it becomes an abyss.

Indeed, winning one event improves your chances of winning the next one. Each additional cycle cements the position of the winner.

Over time, the slightly better people end up with most of the reward. Those that are just the worst end up with nothing.

This idea is known as “Matthew effect” which refers to a passage from the bible: “Since anyone has, it will be given and will abound, but whoever does not have, even what he has will be taken away”.

 

Because Only Some People, Groups and Organizations Enjoy Most of the Reward?

Small differences in performance can lead to very uneven deployments if repeated over time.

Therefore, people or organizations who can do the right things repeatedly are more likely to maintain a competitive edge and rack up huge rewards over time.

This is why conscious habits are so important in winning the game of life.

When creating healthy habits, you create the ability to improve day by day by creating a snowball effect. And thanks to the effect “The winner takes it all”, every victory brings you a huge reward.

If you want to enjoy excellent health, get that promotion you want so much or meet an extraordinary partner, you just have to create healthy habits.

This will allow you to be slightly better than the competition thus bringing you disproportionate advantages over time.

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