Pareto Distribution

Patrizia Castagno
5 min readFeb 18, 2024
Photo by Austin Distel on Unsplash

The Pareto distribution, also known as the 80/20 rule, is a fundamental concept in statistics and economics that describes the unequal distribution of wealth and other phenomena in society. This distribution is named after the Italian economist “Vilfredo Pareto”, who first observed this pattern in the late 19th century while studying the distribution of income in Italy.

History

Vilfredo Pareto noticed that approximately 80% of the land in Italy was owned by 20% of the population. This observation led him to investigate further and discover that this proportion seemed to repeat itself in a variety of contexts, from the distribution of wealth to industrial production.

In 1896, Pareto published his discovery in his work “Cours d’économie politique” thus establishing the basis of what is now known as Pareto’s law or the 80/20 principle.

Practical Applications

The Pareto distribution has been found useful in a wide range of fields. In economics, it helps understand the distribution of income and wealth and is fundamental in the study of economic inequality.

In business management, it is used to identify the most important products or customers, as typically 80% of sales come from 20% of products or customers. In engineering, it is applied to identify and prioritize the most critical issues affecting the quality or efficiency of a process.

Another Common Examples

1. Wealth and Income Distribution: One of the most well-known examples of the Pareto distribution is the distribution of wealth, where a small percentage of the population owns the majority of the wealth. For example, it has been observed that in many countries around 20% of the population owns approximately 80% of the wealth.

2. Customers and sales in businesses: In the business world, the Pareto distribution can be applied to the analysis of customers and sales. Typically, it is found that a small percentage of customers generate the majority of sales. For instance, in a retail business, 20% of customers may generate 80% of the revenue.

3. Production errors and quality: In quality management and production, the Pareto distribution is used to identify the most significant…

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Patrizia Castagno

Physics and Data Science.Eagerly share insights and learn collaboratively in this growth-focused space.LinkedIn:www.linkedin.com/in/patrizia-castagno-diserafino