Who Gets Results?

Many people understand the idea of “The Pareto Principle.” It is familiar as “80% of the results come from 20% of the inputs” It is observable in almost every measurable situation.

It doesn’t seem to work if you think of the number of people who produce some significant share of the results. You would like to believe that 20% of those people would produce 80% of the work. You would be wrong. The ratio is immensely different as the number of people involved grows.

There is a second Pareto-like rule.

The rule was presented by Derek John de Solla Price, a British physicist and information scientist. This one has come to be known as Price’s Law. As does the Pareto Principle, it identifies that results are not evenly distributed according to the quantity of the inputs.

Price’s Law claims that 50% of the work is done by the square root of the number of people involved. When the number of people is small, the result is not especially valuable. With nine people, three of them produce half the outcome. It is no big deal, and it may not be the same three people in every circumstance.

But what about if you have 1,000 people. Now we find that 31 people provide half the value. That seems like something we should know more about. Rather than exceptional ability of a few people, the match between people’s skills and the situation may dominate.

What else should we know?

Price expected the law to apply in situations where creativity, invention, art, and narrow physical skills are considered. You will notice that these are generally the work of solitary individuals. We all have seen that two people creating a work of art are probably not significantly better than one. Ten people cannot write a novel better than Tom Clancy working alone. We must understand the nature of the population we are assessing.

If I tried to study this in a different situation, I would not find the result. For example, Walmart has 2.3 million employees. Do you think 1,500 of them produce half the results? Not likely. The 2.3 million people are not uniformly located to produce valuable output. Cashiers and the folks who design Walmart’s logistic systems have different tasks and do not contribute results with equal value even if both operate to perfection.

Let’s go further.

Does Price’s Law explain societal inequality?

Probably not. Society as a whole is too diverse, and we have no easy way to compare the value of outputs produced. Is a brilliant novel equal to a successful business startup or the renovation of zoning bylaws in New York? Maybe, but I would like to see how that is analyzed.

Where that leads is to what does society value and why? In simple terms, value is a perception thing.

Some people see Elon Musk as a demon and others as an angel. In either case, he is the same person, so there is no objective measure of his value. You can go to many others with similar observations. Jobs? Zuckerberg? Gates? Page and Brin? Stephen King? Solzhenitsyn? George Lucas? MotherTeresa? Successful, but how people value them varies widely. Not so much that we cannot deal with the differences and understand what value means. We don’t do that often. Judging is easier than thinking.

Let’s try some harder ones. Donald Trump? Colin Kaepernick? Martin Luther King? Tucker Carlson? Jordan Peterson? Justin Trudeau? Jack Dorsey?

We learn that people judge based on just a few observable factors. It is not merely the value of outputs. In many cases, personality, or perception of it, dominates.

Where to next?

Price’s Law hints that outcomes will be quite different over all of society. Each of us has a unique ability to contribute, and the contribution depends on the circumstances. Michael Jordan contributes greatly when playing basketball. He might be a poor stock analyst or an even worse jockey.

We know that we differ does not explain how people will perceive the differences. It gives us a reason to examine how information is distributed and processed. It points out a reason to know how different decisions arise when people consider a single or only a few variables. We grow by examining those differences and reaching not a consensus, but an understanding of how people decide. With awareness, we can expect a convergence toward a better position.

Creating policy from a single viewpoint cannot lead to a better society, no matter how well-intentioned the maker may be. Good intentions are not often a driving force leading to achievement. Presently all governmental policies rely on a narrow viewing point. They frequently address exceptions. Making policy based on exceptions is nonsense. It is like an accounting system. You design it to process routine transactions routinely and non-routine transactions not at all. The non-routine requires another method – usually trained or experienced specialists. When you blend the exceptions with the normal, neither works well.

The bits to take away

There are often several ways to assess an outcome. Choosing one viewing point necessarily requires you to rely on only a subset of the observable value factors. Making decisions based on just some aspects, and those defined by viewing point, does not work.

As viewing point becomes more politically expedient than objectivity, policies will tend to move away from practical. Such choices divide society when we know co-operation works better. That leads to chaos in the long term.

 


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I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Business Development Bank.

Be in touch at 705-927-4770 or by email at don@moneyfyi.com.

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