2. Economic Theories
Pareto’s Principle
(The 80-20 Rule)
Pareto Efficiency
Ophelmity
(As opposed to utility)
www.resourcesystemsconsulting.com/.../ Pareto.jpg
3. Pareto’s Principle
“where a large number of factors or
agents contribute to a result, the
majority (about 80 percent) of the
result is due to the contributions of a
minority (about 20 percent) of factors
or agents”
“Pareto Principle.” Business Dictionary. Web. 27 Sept. 2009.
<http://www.businessdictionary.com>
4. Pareto’s Principle
There are numerous applications:
~20% of the population owns ~80% of the
nation’s wealth
~20% of patrons account for ~80% of
sales
~20% of supplies provide for 80% of a
company’s supplies
Etc.
5. Pareto Efficiency
A situation is Pareto efficient when “no
one can be made better off without
making someone else worse off.”
Fonseca, Gonzalo L. “Vilfredo Pareto.” New School of Economics. Web. 27
Sept. 2009.
<http://homepage.newschool.edu>
6. Pareto Efficiency
Pareto Efficiency can be graphically
represented by a production possibilities
frontier:
Points A, B and C
are Pareto-efficient
options. Point X is
inefficient and point
Y is impossible given
current resources.
wahyu.com/wp-content/ uploads/2009/01/ppf.gif
7. Ophelmity
It is widely held amongst economists
that consumers will act in a way
that increases their utility. Pareto,
suggests, however, that people act
based on sentiment and not at all
logically.
8. Ophelmity
Pareto identified seven classes of sentiment
that motivate people’s actions.
1. “Instinct for combinations”
2. “Preservation of aggregates”
3. “the need for expressing sentiments
through external action”
4. Maintenance of societal and communal
structure
5. Societies that stress individual integrity
6. “The tendency to see social events in
sexual terms”
9. “Instinct for combinations”
This sentiment often characterizes
people that are ‘progressive’ and
promote social reform and most
importantly, change.
10. “Preservation of
aggregates”
This sentiment often characterizes
people who promote the
preservation of the status quo.
11. “the need for expressing
sentiments through external
action”
Examples of external action are religious
ceremonies and displays of patriotism.
12. Maintenance of societal and
communal structure
An example of this is self-sacrifice for the
sake of family and community.
13. Societies that stress individual
integrity
These societies are characterized by
criminal justice and civil law
systems.
14. “The tendency to see social
events in sexual terms”
This is self-explanatory.
