Mike Kueber's Blog

December 13, 2013

The Pareto Principle and three paths to success

Filed under: Economics — Mike Kueber @ 10:45 pm

Based on 60 years of experiencing the ups and downs of life, I have detected three ways for an individual to achieve success.  Two of them are based on Pareto Principle or the so-called “80-20 rule.”

The Pareto Principle (named after an Italian economist) has been modified to have a variety of applications in math, business, and economics, one of which suggests that 80% of the available information can be gleaned with 20% of the effort while the remaining 20% of the information will take 80% of the effort.  Based on this principle, an individual might be successful in some jobs doing 20% of the effort to obtain 80% of the relevant information.

Obviously, this strategy is highly efficient for handling a large volume of information and should be preferred whenever the omitted information is unlikely to be critical.  By contrast, other jobs place more importance on making perfect decisions and in these jobs it is dangerous to ignore any information.

My legal career has exposed me to both types of jobs.  Regulatory compliance typically involves a huge volume of transactions, and the costs associated with each one are relatively minor.  But litigation can produce dramatically different results that turn on little pieces of information, and this creates a huge incentive to be exceedingly thorough.

Personally, I preferred doing the 20% of the effort to obtain the 80% of the relevant information, and then applying some common sense and good judgment to make solid decisions.  I am reluctant to spend the 80% of effort to obtain the remaining 20% of the information because that seems so inefficient.  That explains why I was so happy in regulatory compliance and was so unhappy dealing with litigation.

There is a 3rd path to success that doesn’t depend on either solid 80-20 or 20-80 thinking, and that path is often called emotional intelligence.  There are lots of successful people who are not especially good at analysis – in quality or quantity – but who are highly effective because they are good at dealing with the personalities of subordinates, superiors, clients, co-workers, etc.  These people can achieve success through the work of others.  A head football coach might be a good example of this.

Because I am not good in dealing with others or in 20-80 work, I was lucky to end up in an 80-20 career.  Fortunately, our capitalistic system generally directs people to the kind of work they enjoy.