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The 1 Percent Rule: Why a Few People Get Most of the Rewards
- ianai 9y agoEcon is full of principles like this. This was well written.
- ilaksh 9y agoIts full of principles like that, and _for an economic discussion_ makes an average amount of sense -- which is one of the reasons economics isn't actually science.
- TheOtherHobbes 9y agoIt's story telling with no scientific basis - fairy tales for grown ups. Pareto is valid, but getting from Pareto to "You only have to be a little bit better to win everything" is first-order nonsense. Still - the author has books to sell. So there's that.
- Brotkrumen 9y agoIt's not a natural science. If you restrict sciences to whatever you believe a natural science is, you'll kick out some useful, predictive and fruitful subsets of the natural sciences out too. So maybe we should let that old meme "if it's not done in white lab coats, it's not a science" die.
- 1_2__3 9y agoSure that's fine. Economics still isn't science, even by the relaxed definition.
- Brotkrumen 9y agoBy what relaxed definition? I didn't give a definition of "science" as that's kind of a hard problem smarter people than me tried to solve. But hey, let's play a game: You tell me what's a necessary condition for something being a science and I'll tell you an instance where that condition as broken or a "non-science" that fulfills that condition. Go!
- dsacco 9y ago"Relaxed definition" is a fairly pretentious way of describing social sciences. Is psychology also not a science, in your view? Science as a process of study can be effectively applied to phenomena that are not as easy to rigorously measure as physics and chemistry. I don't really understand where this view comes from. Is it a lack of exposure? There is a rich world of academic study in economics that is deeply complex, mathematical and even empirical, insofar as you can reasonably achieve in a domain that studies human behavior. There's more to it than the Pareto principle and "A Market for Lemons." Studying the individual or aggregate behavior of human beings is inherently more difficult than inanimate objects. That doesn't mean you can't be rigorous with it.
- anigbrowl 9y agoGet over yourself; that's like saying Newton wasn't a good scientist because he was wrong about a lot of things. Economics, like sociology, is a young discipline that yields a lot of mistakes and goes down a lot of dead ends because it gropes towards an understanding of hard problems. Criticizing economics is entirely valid. Pissing on it is not.
- ianai 9y agoI think economics is in its vast infancy. It studies a highly complex system after all. It's constantly in danger of being coopted and manipulated toward ideological ends, too.
- dsacco 9y agoWhat is your definition of "science", and why is economics not a science in your view?
- joubert 9y agohttps://en.wikipedia.org/wiki/Science https://en.wikipedia.org/wiki/Science
- JimmyAustin 9y agoThis has an interesting application in software and machine learning. Traditionally it's been easy to expand into a software market if you can come up with a superior product, but when you are playing with AI and competing on having a superior dataset, size and existing advantage starts to matter a lot more.
- adangert 9y agoWhich is the whole reason why open-AI is so important, and likely will fail. Once Google or Facebook or Amazon start the AI ball rolling, the inequality will explode in their favor.
- kingkawn 9y agoI too can make broad observations about the world, claim that the evidence I find is all pointing to my conclusion, claim that the variations in the evidence are all within the range I have set, and then use this Magical thinking to justify sternly insisting that economic exploitation is "natural."
- simonh 9y agoAre you challenging the contention and the reasons cited? There is no argument in the article that this is good or desirable. Many things in nature are terrible and destructive. But doesn't it help if we understand them? What point are you trying to make?
- kingkawn 9y agoThat there is a titanic economic incentive to produce this kind of observation in order to create justifications for the economic order, that anyone who does so with skill will be rewarded, and that drawing these conclusions serves the purposes of suppressing cultural developments rather than being unassailable, spiritual commitment to The Clear Correctness and Fairness of Our Objectivity
- dsacco 9y agoSure, but the author didn't do any of that. Your battle doesn't really seem to be with him, which is the point of the comment you responded to.
- anigbrowl 9y agoYou are correct and I made a similar argument above for not passively accepting the existence of a natural phenomenon as a justification for The Way Things Are in society, but don't confuse specificity with rigor. Imperfect generalities often reflect partial truths, and to focus only on the inaccuracies therein is a kind of philosophic myopia.
- Jabanga 9y agoYou're misreading the article if you think he's trying to create justifications for the economic order. What he's doing is arguing that the rewards of those at the top are a byproduct of a defect in competitive processes that make them disproportionately large relative to merit for the elite minority. I also believe your belief that society rewards those who justify elitism is very misguided. Virtue signalling through displays of altruistic self-sacrifice and support for the underdog rules the day. Playing that game is incredibly rewarding for social status.
- jliptzin 9y agoI see how this makes sense in business, real estate, and in nature but I don't get the sports analogy. Where is the accumulating advantage from one race to the next for a swimmer, for example? If the gold medal swimmer eeks out a win by just 0.01 seconds, 5 races in a row, to me those are all independent events not affecting each other so I don't see why there should be any other explanation other than the swimmer is just slightly better than everyone else?
- Brotkrumen 9y agoIf you'd want to argue for the effect, you could say the winner gets sponsors, better food, better trainers, better doctors, less time for fund raising, more time for training, etc.
- thechao 9y agoImagine two swimmers the exact same age. They can swim competitively from age 21--30. There are 10 meets per year. The question is this: after each year, what is the probability that swimmer A has more medals than swimmer B? The resource for swimmers is time.
- edent 9y agoOnce you win a gold medal - you're more likely to attract better trainers / facilities / sponsorship. That can be used to build an unassailable advantage.
- psyc 9y agoAside from the benefits others have mentioned, winning contests increases testosterone and lowers cortisol, creating feedback effects for winners and losers. https://www.ncbi.nlm.nih.gov/pubmed/2606468 https://www.ncbi.nlm.nih.gov/pubmed/2606468
- anigbrowl 9y agoIf you don't think that gets into the head of the swimmer's competitors then you are mistaken. Further, success attracts success; a swimmer with a slight advantage wins more prize money, attracts the attention of better coaches, gains more fans and so on, all of which may combine to improve performance by just enough to maintain a competitive advantage. All these might seem like extrinsic factors to you but interdependence and interaction are a reality; pure independence is a useful analytical tool, but we dwell in the world of matter, not of forms.
- rectang 9y agoThe article suffers from the just-world fallacy. You only need to be slightly better than your competition, but if you are able to maintain a slight edge today and tomorrow and the day after that, then you can repeat the process of winning by just a little bit over and over again. A 1% advantage doesn't mean 1% "better" if it is the result of network effects or historical accident. It's certainly plausible that accumulative advantage leads to winner-take-all effects, but if being "better" was the only factor, Betamax would have beaten VHS. Succeeding means securing advantage. Those who expect to succeed only by being "better" are doomed fools.
- pcarolan 9y ago"Better" also applies to marketing.
- TheOtherHobbes 9y ago"Better" is circularly self-defining, because it really just means "More successful in a given niche." You don't really know what's going to be more successful in a given niche until it becomes obvious. As you say, there's no reason it has to mean "Worked harder", "Was technically superior", "Practiced more", or any of the other things it would mean in a less arbitrary world. You can often increase your odds of success with all of the above, but a 1% change - whatever that means in practice, and however you're supposed to measure it - is always going to be swamped by effects outside your control.
- Retric 9y agoThat's just circular reasoning, your King because your father was the King who'd was King because his father was the King... But, the reality is someone is King because of their ancestors actions and accidents of birth etc. Further fitness is defined by inheritable traits. You can have a billion descendants with blue eyes you can't have a billion descendants who are all kings of England at the same time. PS: A useful rule of thumb is a justification sounds like a value judgement something else is going on.
- jasode 9y ago
- elitemindset 9y agoWe observed this rule recently and called it the Pareto Cubed principle[1], or the 50/1 rule. It's even more counterintuitive than the 80/20 rule until you really understand the nature of power laws and unequal distributions. [1]: https://www.elitemindset.com/the-pareto-cubed-principle/ https://www.elitemindset.com/the-pareto-cubed-principle/
- ianai 9y ago"n the few activities that are responsible for the majority of your success." It also suggest normalizing. I.e. If you can identify the 80% of the time where you're under utilized at work by one thing then use that time for something else. Also, I think this gives insight into knowing when to cut a loss or decide whether something works or not.
- anigbrowl 9y agoIs that you Sebastian Marshall?
- heisenbit 9y agoTaking a principle and lauding it makes not an insight. There is no rationale given for the 1% rule e.g. why not 10% or 0.1%? There is not statistics behind the 1% rule. Yes there are "the winner takes all" situations but the article neglects diversity and other negative feedback loops e.g. in fashion the winner may succeed only to be swept away by a counter-revolution trend. About the author: > I'm an author, photographer, and weightlifter. Most people know me because of my writing about habits and human potential. I've created this weird “job” for myself where I try to be an advocate for the world's best ideas.
- dev1n 9y agohttps://en.m.wikipedia.org/wiki/Zipf's_law https://en.m.wikipedia.org/wiki/Zipf's_law
- dsacco 9y agoTo expand on this comment, since it's just a (albeit helpful) link: the author's point is that competitive advantage follows a power law. When phenomena appear to obey a power law, the specific percentage increase does not need to particularly rigorous to illustrate the growth pattern. You could plot the two axes without numbers and it still basically makes sense. You're going to see a disproportionately weighted side and a long tail next to it. That doesn't mean the author is necessarily correct in the overall observation here, or that you shouldn't add further rigor to the analysis; it just means that for the purposes of an article without peer review, "1%" is probably fine. Power laws are very often fuzzy when they're applied (or perhaps rather, "observed") in practice.
- alttab 9y agoIn multiple places, especially towards the end, the author touches on negative feedback loops as much as positive ones. That said - in a zero sum game for resources, a positive feedback loop is in itself a negative feedback loop for others.
- simonh 9y agoIt's a rule of thumb, not a law. As the article points out repeatedly the ratios differ from one example to another as you can see from the examples given. The 'rules' are ballpark averages or easy to remember round numbers across many different situations. What's important is to understand the effects that lead to these distortions in distribution.
- Unkechaug 9y agoAll he is doing is explaining positive feedback loops...
- Noughmad 9y agoNot true. A positive feedback loop would result in a monopoly, i.e. one person having all the wealth, or only one type of tree in the rainforest. We don't see that, instead there is a equilibrium distribution.
- cJ0th 9y agoAfter reading such an article it is easy to see this pattern everywhere. And, sadly, it is also easy to see all the areas where I am in the group of people who come in close second. With the article in mind it would seem rational to quit endeavors of those kind cold turkey. In reality, it's not so easy. Maybe you don't want to give up b/c of all the time you've invested or b/c you're really passionate about what you're doing or maybe some fellow people still keep encouraging you and don't want you to stop... This makes me wonder whether there is a good general exit strategy for those situations. That is, a method to reorientate as quickly, painlessly and promising as possible. I worry that's a too abstract way to think about it, though.
- ianai 9y agoFind the next best alternative. Maybe a so/so programmer makes for a well informed security consultant.
- simonh 9y agoThe other way to look at it is that, in many situations in life, by improving your competitiveness by only a few percent you can often reap much bigger rewards. In the Olympics that's really tough, but in most people's lives the bar you're trying to beat is just that set by the environment you happen to be in. Being a bit better prepared, paying a bit more attention, working a bit harder can over time have outsized cumulative effects. We don't live in a perfect world, but how prepared we are to do well in it is up to us.
- pdimitar 9y agoSomething I do more and more often in the last one year is to have a more ruthless and cold approach -- if something doesn't work well enough in a deadline I set myself, I just abandon it. There's always a risk of never going far enough to actually become the best there is in something. That's an undeniable fact. But it gives you (1) a priceless experience, and (2) teaches you to prioritize. I am definitely not the wisest man -- quite the contrary, I am pretty flawed -- but I learned that holding on too much is much worse than letting go and maybe trying again one day. The past is a very poor decider of whether you should persist. There are a lot more factors which are much more important.
- betaby 9y agoThere is an interesting consequence of this. Everybody realized inequality is a bad thing. And thus equalization is the answer. So let tax progressively. What is missing there, and will be missed in foreseeable future is that government equalize mid-manager with retail shelf stoker. Real ones who own and reap benefits are excluded from the process. You can see prove of that everywhere - gentrification haters, bay area protests against programmers. Still elites are never even considered as a main problem. Basically gov policies equalize lower 99%, top 1% is untouched.
- bbcbasic 9y agoElites have enough power to evade equalisation. They can: 1. Lobby and influence policy. 2. Shop for a tax effective jurisdiction. 3. Get the best tax and legal advice money can buy.
- lettersdigits 9y agoMy favorite quote from the article: > Imagine two plants growing side by side. Each day they will compete for sunlight and soil. If one plant can grow just a little bit faster than the other, then it can stretch taller, catch more sunlight, and soak up more rain. The next day, this additional energy allows the plant to grow even more. This pattern continues until the stronger plant crowds the other out and takes the lion’s share of sunlight, soil, and nutrients.
- wiradikusuma 9y agoThe article downplays the word "consistency". Being slightly better is indeed an advantage, but unless you keep being "slightly better" all the time, the others can outdo you, since you're not the only one trying to move up. "Use habit to keep being slightly better!" -- but sometimes "slightly" is not easy to get by simply making it a habit. "Grow userbase 5% week over week", for example. It's easy to get 5 extra users when you have 100. But once you reach 1000, getting 50 probably not easy.
- rdlecler1 9y agoThe author mentions the importance of accumulative advantage a number of times,not just consistent advantage. The former being a positive feedback loop (that is also a negative feedback loop for competitors).
- drchiu 9y agoThe comments here seem to point to the fact that the author is simply using a bunch of loosely connected observations to try and make a point more important than it is. I've found that the article was very useful framework to think about optimizing things. Especially as the author describes how small tiny advantages appear to accumulate over time and amount to giant advantages that is meaningful. Ie. habits, no matter how small but are alightly better, snowballs into a large advantage over many iterations
- sararschreiber 9y agoThe "winner takes all" reminded me of this article I thoroughly enjoyed http://nautil.us/issue/44/luck/dont-tell-your-friends-theyre-lucky http://nautil.us/issue/44/luck/dont-tell-your-friends-theyre...
- julioviegas 9y agoSince when this became reddit? Jeez...
- julioviegas 9y agoSince when this became reddit? Jeez...
- thomasmarriott 9y agohttps://en.wikipedia.org/wiki/The_Gospel_of_Wealth https://en.wikipedia.org/wiki/The_Gospel_of_Wealth
- hammock 9y agoPareto distribution does not imply "winner take most", the #1 spot is usually far less than 50%. The 1-2-3 podiums cartoon is similarly inaccurate.
- mhneu 9y agoOne mechanism explained by Piketty. Rate of return on capital is higher than wage growth. So the wealthy get richer at a faster rate than the average worker. This amplifies inequality. http://www.newyorker.com/news/john-cassidy/pikettys-inequality-story-in-six-charts http://www.newyorker.com/news/john-cassidy/pikettys-inequali...
- nathanvanfleet 9y agoI love how the "80/20" rule gets stretched so often that in this article it talks about hyperdominate trees that take up 50% of the Amazon. So 80/20 can go anywhere form 99/1 to 50/50. What an interesting "pattern"
- anigbrowl 9y agoBut that's how things are in mathematics.
- dropstickle 9y agoIt is an example of accumulative advantage, which the article author claims underpin the 80/20 rule.
- Noughmad 9y agoYou're reading the numbers wrong, there is no stretching. The 80/20 rule means that 80% of resources is controlled by 20% of participants. Applying the same ratio to subgroups, you also get that 1% of participants control about 50% of the resources, as for trees in Amazon. The 80/20 number is just nice and commonly used because it adds up to 100.
- anigbrowl 9y agoI love Pareto distributions but I don't like the author's framing of this as an inescapable law of nature. We have control over how society's feedback mechanisms are structured, and while it is foolish to try to reverse an inevitable trend we are by no means required to passively accept, especially when wildly disproportionate outcomes lead to systemic weakness. It's worth considering that from the cellular point of view, cancer is extremely 'successful.' But at the human level, discovering a tumor is not a cause for celebration, but for anxiety and further investigation. Some tumors are benign, and can be thought of as a mere excess of a good thing causing only cosmetic or minor discomfort. Others are malignant, actively reproducing themselves to excess and pulling all the body's resources towards themselves, disregarding the health of the host body but without creating any sort of value (because of the impossibility of reproducing itself independently of its originating context). A benign cancer is tolerable; a malignant one must be excised or it will kill the host. (This might seem like a hand-wavey objection, but systems biology suggests that Pareto effects show up in the development of cancers just as in many other natural systems, eg http://journals.plos.org/plosone/article?id=10.1371/journal.pone.0013803 http://journals.plos.org/plosone/article?id=10.1371/journal.... ) We should not fall into the trap of assuming that just because a social phenomenon instantiates some natural behavior, that it is therefore a Good Thing, aka the naturalistic fallacy. Nature is inherently fractal, and extreme outcomes may be instances of local maxima that are suboptimal from the perspective of the system as a whole.
- CriticalSection 9y agoIf money was distributed in the USA for something that is actually competitive, like athletics, then people of African descent would rule the country, as they seem to dominate this arena, even in venues like golf. If you look at the wealthiest people in the US, they are people like the Koch brothers, who inherited their wealth, or the Walton heirs, who inherited their wealth, or the Mars children, who inherited their wealth, and so on. You could also look at others. Bill Gates was born with a million dollar trust fund - his great-grandfather ran National City Bank, his mother was on United Way’s executive committee with the CEO of IBM, his father ran a law firm, he went to Lakeside high school (current annual fee: $33,000) which had teletypes and access to a GE mainframe in the late 1960s. Warren Buffett is also "self-made". His grandfather owned a chain of grocery stores, his father was a congressman, he went to UPenn and Columbia. Mark Zuckerberg's parents are professionals, he went to high school at Phillips Exeter (current tuition $36,000, more if boarding there). The first group did absolutely nothing. They're not really being "rewarded" as the article says. They can just jet from Aspen to Monte Carlo their whole lives, expropriating surplus labor time from those of us who work and create wealth. You can watch the documentary "Born Rich" which was made by one of these people (it's sometimes on Youtube) and is about these people. The second group - 1%ers who made it into the 0.1%, I suppose transitioned from one class to another, and had a hand in codifying how a large number of people worked. Even doing some of the initial stuff themselves - porting BASIC to yet another platform, selling a CPM ripoff to mom's friend on United Way's board, starting yet another social network (and being sued for stealing it), beating the S&P 500 year after year. This is all helped by a massive mechanism of basically all of society tilted to let this class of what I consider parasites to expropriate the surplus labor time of those of us who work. It's a social relationship - workers work and create wealth, and heirs expropriate our surplus labor time and the wealth we create during it. And use it as a cudgel against us not just in the world of business, and not just in the governments they created and maintained, and the schools those governments run, or the media they created and maintain and to a large extent monopolize, but also other social organizations as well like churches. Through the corporate owned news I learn Trump, an heir and businessman now running the government, this week signed a document which would allow churches to be more involved in selecting who is and is not in government. All goes into each other - you organize the wretched of the earth at the bottom of society to believe in some superstitious fantasies in order to select certain leaders who will be even more vehemently against their economic interests. One part of society flows into another, but it all flows back to the center, which is what we all wake up and do most days - work and production, and the relationship between the worker and those who are parasites on worker's labors and who have the upper hand at the moment. Of course, several centuries ago it was the royal families who had the upper hand on the poor and the workers and the merchants, so these things seem to shift around as history marches on.
- peteretep 9y ago> one of his lasting legacies > was turning economics into a > science rooted in hard numbers > and facts Objection
- Nomentatus 9y agoI'm guessing a power law applies to what percentage of the elite are killed during any given revolution throughout history. Nonetheless, I'd still like to prevent revolutions; and I don't think revolutions being associated with a power law makes them inevitable or immutable.
- 75dvtwin 9y agoVery well written essay. Had definitely prompted me thinking, and gave me a 'formulaic' way to describe what I would call a 'gut feel'. my take away from the article, with some elaboration is the following: a) through out our lives we have 'binary choices' and 'graduated choices. Where 'binary choices' basically a yes/no kind of things. While 'graduated choices' allow shades. b) the more binary choices present in a given subject of application (eg economics of individual income), the more 80/20 or (50/1) rule hold c) consistency in making 'right' binary choices, has huge benefits
- Houshalter 9y agoI'm not convinced his explanation is correct. Power laws appear in many places besides economics and biology. Even in places where there is no concept of competition. For instance, the distribution of word use in the English language follows a power law. Words don't exactly "compete" for use and there is no reason to expect a power law there. It seems like they appear almost everywhere. I have yet to find a satisfactory explanation of why!
- teslaberry 9y agoanyone presenting human social grouping decisions as a law of nature is usually full of it. the only 'natural ' aspects of the larger social organization of society come from man's evolutionary social upbringing in small groups. civlization is based on man's 'natural' use of his reasoning and social communication to transcend his 'natural ' 'primitive state'. there is nothing un-natural at all about trying to change ourselves. it is perfectly a function of man's natural capacities to use reason . the 'un-natural' lie is that there is anything more 'natural' and therefor valid about how our society is supposed to be based on human biology operating at the higher civilization social level. biology does play a role in demographics. for example society cannot transcend age demographics except by social level decisions to invent medicine and life extending technology or, the opposite, to intentionally CULL human beings by starvation and other methods ( killing is historically efficient for this purpose but very costly in blowback and resources) if it is natural for a king and his henchmen to do as he pleases, then what is unnatural about altering human demographics by inventing medicine or by genocide? do queen termites violate natural law by subjugating the hive only to decide when to split or breakup. the problem with describing things as natural and 'un-natural' is that it more likely reflects the bias and subjectivity of the person attempting to propogate their views as 'good and bad' more than any meaningful discussion of what qualifies as more primarily and deeply embedded aspects of human behavior versus those that are emergent only at the social and civlizational level.