The 1 Percent Rule

James Clear recently wrote about why a few people get most of the rewards. He referenced the one percent rule first identified and written about by Vilfredo Pareto. This is also called the Pareto Principle.

Pareto was an Italian economist who wondered why a tiny number of pea pods in his garden produced the majority of the peas. He wondered if the same thing that was happening to his peas was also happening elsewhere in life. He studied statistics and found that 80% of the land in Italy was owned by 20% of the people. He learned that in Britain 30% of the population earned 70% of the income.

He continued his research and found that while the exact numbers varied from one topic to another the pattern held firm to almost everything. The majority of rewards seemed to always accrue to a small percentage of people. This became known as the Pareto Principle. It is also called the 80/20 rule. And it has been called the 1% rule.

This principle is seen in various places today. In the 2015-2016 National Baseball season 20% of the franchises won 75.3% of the championships. Two teams, the Boston Celtics and the Los Angeles Lakers won half of the championships in NBA history. Clear’s article cites many other examples.

Why does this happen? There may be more than one reason but one reason is the power of accumulative advantage. Once something starts to win it gains advantages over those that are not winning. It becomes stronger. It works in nature as well as Clear describes. This advantage plays out in each contest between the players or people.

Clear’s 1% rule is an application of the Pareto principle. If you can be 1% more effective than the competition you can win. Sustaining the habits that create that advantage leads to sustained success. This is just as applicable to the individual as it is to the business or other organization. Win by just a bit each time and you can build the momentum of being in that 20% that wins 80% of the return.

This observation explains why winners become bigger winners and why those who do not win find it harder to succeed. To sustain success then requires initial wins. You have to succeed to succeed. Success breeds success. A good thing to remember in any competitive endeavor.

Read James Clear’s complete article here.

Wishing you well,

Daniel R. Murphy
Educating people for building wealth, adapting to a changing future and personal development.