Pareto Principle

Summary: The Pareto Principle describes how in a variety of situations, 80% of a product or phenomenon’s output often comes from only 20% of the available input. For example, a business may receive 80% of its income from the sale of only 20% of the products available in their inventory.

Originators: Vilfredo Pareto (1848-1923), Dr. Joseph, M. Juran (1904-2008)

Keywords: 20/80 principle, 20/80 law, 20/80 rule, productivity, business, prioritizing, Pareto’s principle of unequal distribution, distribution, wealth distribution, input, output, products, profit

The concepts behind the Pareto Principle were described by Vilfredo Pareto in the late 19th century. Pareto observed the wealth distribution in his home country of Italy and noticed that 80% of all the wealth was held by 20% of Italy’s richest people.

In the 1940s, Dr. Joseph Juran was studying Pareto’s work and realized that this 80/20 rule could also be applied to the area of quality control. When looking at defects in products, he observed that most of these defects were being caused by a small number of problems in the production process. He called this principle Pareto’s Rule in honor of its founder.[i]

Over time, people have described how this 80/20 law can be applied to a variety of areas related to economics, productivity, marketing, cost estimating, and healthcare.

Real Life Examples

A number of real life examples describe how a smaller percent of a situation’s effects lead to a much greater percent of that situation’s results.

In 2002, Microsoft announced that 80% of errors that occur in their system are caused by 20% of all bugs found in their system.[ii]

The American distribution of wealth holds closely to the 80/20 rule. In 2012, 20% of Americans held 89% of all wealth in America.[iii]

Pareto’s principle has been noted in relation to healthcare, as a small percentage of patients use the majority of healthcare resources.[iv]

Prioritization and Increasing Productivity

Pareto’s principle continues to help people by showing best ways to prioritize resources. Noticing unequal patterns of distribution and acting on this knowledge is a great way to improve businesses and personal productivity. Those who observe this principle are able to prioritize in ways that lead to increased quality, productivity, and profit.

For example, in some businesses, 20% of employees complete 80% of the work. Employers may notice workers who are high producers and consider providing a raise or promotion. Contrarily, they might notice low producers and seek to determine what is leading to low levels of output.

In some businesses, 80% of sales come from a mere 20% of products. Some products are much more popular than others. Businesses may take notice of what qualities these popular products hold and seek to produce similar products that appeal in the same way.

If 80% of views on a blog come from 20% of the articles, this is a helpful way to determine best types of articles in the future. Or, if a person completes 80% of their best work in 20% of their working time, this is a great way to consider what conditions lead to greatest productivity.

Pareto’s principle helps people notice patterns and act on them to improve the ways they go about work and production. It helps people decide how to best use resources to make a profit.

References

[i] The Economist. (2009). Joseph Juran. Retrieved from http://www.economist.com/node/13881008

[ii] Rooney, P. (2002). Microsoft’s CEO: 80-20 rule applies to bugs, not just features.

[iii] Wolff, E. N. (2012). The Asset Price Meltdown and the Wealth of the Middle Class. New York: New York University.

[iv] The High Concentration of U.S. Health Care Expenditures: Research in Action, Issue 19. June 2006. Agency for Healthcare Research and Quality, Rockville, MD. Retrieved from http://archive.ahrq.gov/research/findings/factsheets/costs/expriach/index.html

Inversion

 

Summary: Inversion is an assessment strategy that looks at problems backwards. Difficult problems often need to be considered from another angle. Instead of trying to figure out the correct or optimal answer to a question, inversion considers how to avoid incorrect or poor answers.

Originators: Carl Gustav Jacob Jacobi (1804-1851), Charlie Munger (1924-Present)

Keywords: backward thinking, opposite, premortem analysis, question inversion, inversion thinking, avoiding failure, risk reduction, project management, worst case scenario

Several people have contributed to the concept of inversion in the context of making decisions. Carl Gustav Jacob Jacobi was a mathematician famous for telling his students to “invert, always invert” as they were solving their math problems. In other words, when students were stuck on a problem, he encouraged them to consider it from another angle, working the problem backwards instead of forwards.

Charlie Munger is an investor who popularized Jacobi’s thoughts on inversion. Munger, who is still alive today, often tells a famous story to explain the concept of inversion: There was a man who wanted to figure out where he was going to die, so he could make sure to avoid that place.

As a more practical example of inversion, Munger has encouraged college students to think of traits they do not want to exemplify, such as slothfulness and unreliability. People who avoid these traits will automatically find themselves moving towards more positive traits, becoming hardworking and reliable over time.[i]

3 Practical Ways to Use Inversion

Inversion is a highly effective decision-making strategy that can be used in many spheres of life. Here are three practical ways to use inversion.

Perform a premortem analysis. This strategy is used before the commencement of large projects. A team of people about to start a large project will gather together to think through the work ahead of them.[ii] They think about the end of the project and imagine every possible scenario that could go wrong. Together the team members talk through possible reasons for failure, and come up with plans to prevent potential problems.

Invert your questions. When thinking about problems, inversion can help people rephrase their questions in a different way. For example, when considering investment strategies, a person might ask, “How could I potentially lose money?” instead of “How can I make money?” In assessing barriers to productivity, a person might ask, “What are some things that would distract me more?” instead of “How can I concentrate better?”

Brainstorm how to be unsuccessful. Most people think of ways to succeed and ways to become the person they want to be. To look at this from a different viewpoint, people might consider who they don’t want to be and what would make them unsuccessful. What traits would make them fail at their job? What mistakes do they have the potential to make today?

Inversion simply helps people consider a problem from a different angle, which often brings new and creative insights into the picture.

References 

[i] Suseno, T. (August 9, 2009).Charlie Munger speech at USC – May 2007 (part 3 of 5) [Video File]. Retrieved from https://www.youtube.com/watch?v=YkrpoLYY-WY&feature=youtu.be&t=2m20s

[ii] Klein, G. (2007) Performing a project premortem. Harvard Business Review, 85(9).

Feedback Loops

Overview: Feedback loops are cause-and-effect processes within organisms and systems. Negative feedback loops serve to maintain homeostasis or equilibrium. Positive feedback loops are used to intensify or change the status of a system.

Originators: Karl Ferdinand Braun (1850-1918), Henri Louis Le Chatelier (1850-1936)

Keywords: homeostasis, feedback, cause-and-effect system, circuit, circle, positive feedback, negative feedback, closed system, amplify

The concept of feedback loops has been around since the 18th century, but the actual term “feedback” wasn’t used until later. In the 1880s, Karl Ferdinand Braun and Henri Louis Le Chatelier separately discovered how systems tend to respond to stimuli by seeking to establish a new equilibrium.[i] The concepts behind their research form the basis of current information on feedback loops.

Feedback loops allow organisms and systems to maintain control of important processes by signaling back whether an input should be intensified or stopped. In its simplest form, a feedback loop might include two factors, which can be labeled A and B. In the feedback loop, A impacts B, and this stimulation of B leads it to have a return impact on A.

Feedback loops are often much more complex than this, and can include more than two factors. Feedback loops can be either positive or negative, with each type of feedback loop being used in different types of processes.

Negative Feedback Loops

A negative feedback loop seeks to maintain homeostasis. Homeostasis is the ability to stay within specific boundaries so that an organism or system can function at optimal levels.

A furnace thermostat is an example of a negative feedback loop. This negative feedback system allows a house to stay at a proper temperature, without becoming too hot or too cold. Based on the set temperature, a thermostat signals to a furnace that more heat is needed. The furnace produces more heat, and once the heat reaches the set temperature, the heat signals the thermostat to turn the furnace off. Should the temperature in the room decrease, the thermostat is trigged once more to turn the furnace back on, and the feedback loop continues. In this way, the thermostat triggers the furnace to turn on and off throughout the day to maintain the proper temperature.

Positive Feedback Loops

Positive feedback loops don’t seek to maintain homeostasis; rather, they move organisms or systems away from homeostasis, seeking to intensify or change certain processes.[ii]

Childbirth is an example of a positive feedback loop. In the case of childbirth, the body must move steadily away from homeostasis for the baby to be safely born. Hormones and nerve impulses in the body lead to contractions, which cause the baby to be pushed against the cervix. This pressure against the cervix signals more nerve impulses which intensifies contractions and continues the loop around again. Rather than keeping the body within a set of boundaries, the goal of this positive feedback loop is to amplify contractions more and more until the child is born. 

Using Feedback Loops to Improve Organizations

Feedback loops are natural mechanisms found in a variety of fields such as biology, physics, engineering, and mathematics. People have observed these feedback loops in nature and considered how this concept can help organizations and groups of people function more effectively.

Many academic institutions, places of employment, and businesses ask their students, employees, and customers to fill out feedback forms. Feedback forms typically ask for suggestions for how the organization can improve. A common problem is that these institutions fail to close the feedback loop by taking action based on the results of the feedback. For the system to function as an actual loop, the organization needs to respond and put into practice the suggestions that were made.[iii]

References

[i] Norwich, K H. (2010). Le Chatelier’s principle in sensation and perception: Fractal-like enfolding at different scales. Frontiers in Physiology, 1(17).

[ii] OpenStax, Anatomy & Physiology. OpenStax CNX. Feb 26, 2016 http://cnx.org/contents/14fb4ad7-39a1-4eee-ab6e-3ef2482e3e22@8.24.

[iii] Watson, S. (2003) Closing the feedback loop: Ensuring effective action from student feedback. Tertiary Education and Management, 9, 145-157.

 


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The Tragedy of the Commons

Summary: The Tragedy of the Commons is an economic theory that describes how people often use natural resources to their advantage without considering the good of a group or society as a whole. When a number of individuals consider only their own welfare in this manner, it leads to negative outcomes for everybody, as the natural resource becomes depleted.

Originators: William Forster Lloyd (1794-1952), Garrett Hardin (1915-2003)

Keywords: resources, natural resources, depletion, over-use, the commons, exploitation, pollution, over-fishing, deforestation, global warming, government regulation, taxation, public property, private property

In 1833, William Forster Lloyd wrote a short pamphlet detailing the concepts behind the economic theory known as The Tragedy of the Commons. The contents of this pamphlet were mostly unknown until 1968, when Garrett Hardin wrote an article in Science magazine that brought Lloyd’s work into the spotlight.[i]

Understanding this economic theory requires a working definition of what is meant by “the commons.” “The commons” includes any natural resources that are not owned by an individual or corporation. Rather, these resources are available for public use. This might include public pasture land, lumber, oil, the oceans, the atmosphere, wildlife and fish, and many other common resources.

The Tragedy of the Commons describes how people often take advantage of resources that are freely available to them. Often, they don’t consider the fact that if everyone over-uses the resource, this will lead to negative effects for everyone, including themselves.

The famous example given by Hardin (1968) includes pastureland that people use to graze their cattle. Herdsmen who operate under The Tragedy of the Commons don’t consider how excessive grazing or adding additional cattle to their herd will impact other herdsman or everyone as a whole in the long run. The more herdsman who only consider their own herd and profit, the more the pasture is run down and the more all of the herds suffer. As Hardin (1968) put it, “Freedom in a commons brings ruin to all.”

Current Examples

The Tragedy of the Commons is relevant to many current issues.

National Parks are often cited as a prime example.[ii] More and more people have visited the U. S. National Parks since WWII, leading to concerns about the exploitation of environmental resources.

Overfishing is another relevant topic.[iii] Many bodies of water including oceans, lakes, and rivers, are open to the publish for fishing. This has led to many species of fish becoming endangered and many fisheries finding themselves in trouble. Increased regulations and privatization of certain bodies of water has led to improvements in this area.

Pollution and climate change have also been cited as an example. [iv] The atmosphere can be seen as a global resource, and as people fail to limit the amount of pollution they produce, everyone is affected by the resulting climate change.

Other problems that some people have connected to The Tragedy of the Commons are deforestation, overpopulation, depletion of gas and oil reservoirs, and harm to ground water.

Several solutions have been proposed to offset negative outcomes related to The Tragedy of the Commons.[v] In general, solving this problem requires collaboration and cooperation as people come together to preserve resources for the good of all. Regulation and taxation by the government can limit the effects people have on certain resources. Informal or formal property rights can be given to individuals or groups to restrict peoples’ over-use of other resources.

[i] Hardin, G. (1968). The tragedy of the commons. Science, 162(3859), 1243-1248.

[ii] Wozniak, S. & Buchs, A. (2013). U.S. national parks and “the tragedy of the commons”.  Journal of Alpine Research, 101(4).  

[iii] Benjamin, D. (2001). Fisheries are classic example of the “tragedy of the commons”. PERC Report, 19(1).

[iv] O’Gorman, M. (2010). Global warming: A tragedy of the commons. Comparative Research in Law and Political Economy, 6(7).

[v] Libecap, G. D. (2008). The tragedy of the commons: Property rights and markets as solutions to resources and environmental problems. The Australian Journal of Agricultural and Resource Economics, 53(1), 129-144.

 

Law of Diminishing Returns

Overview: The Law of Diminishing Returns is an economic theory that describes how at a certain point, increasing labor does not yield an equally increasing amount of productivity. In other words, when the amount of input increases over time, at some point the rate of output decreases for each unit of input.

Originators: Anne Robert Jacques Turgot (1727-1781), Thomas Malthus (1766-1834), David Ricardo (1772-1823) [i]

Key words: production, economics, labor, agriculture, growth over time, rate of return, diminishing returns, law of diminishing marginal returns

The Law of Diminishing Returns was developed by a number of economists in the 19th century. Original thought on this economic theory was mostly discussed in terms of farming, fertilizer, and the production of crops.

An early research study on the impact of fertilizer provides a good example.[ii] Soil contains a limited number of nutrients that enable it to grow a maximum number of crops. Adding fertilizer to soil is one way to increase the amount of crop that can be produced on a plot of land. However, there is a limit to how much increasing fertilizer leads to an equal increase in the amount of plants.

This early study highlighted research on the impact of monobasic phosphate of lime – a type of fertilizer – on potted plants. Units of fertilizer were added to potted plants, after which the rate of growth of the plants was measured. When one unit of fertilizer was added, this led to a 44.3% increase in yield per unit of fertilizer. When 2.5 units of fertilizer were added, this led to a 10.8% increase in yield of plants per unit. Finally, when 10.0 units of fertilizer were added, this led to a 2.0% increase in yield of plants per unit. The more units of fertilizer that were added, the less yield of return each unit of fertilizer produced.

The Law of Diminishing Return began as an economic theory, but over time, people have shown how it’s application covers a broad range of other areas.

Employee work hours: Increasing the number of hours that an employee works leads to greater productivity to an extent. However, after hours are increased to a certain point, the employee ends up being less productive due to burnout, illness, and absenteeism.[iii]

Healthcare: Research has shown that when doctors use medical interventions, more is not always better.[iv] Over time, an excessive number of medical interventions can actually harm a patient instead of lead to improvement. Doctors need to weight the costs and benefits of each intervention, considering at what point a patient will experience diminishing returns.

Education: One study found that student’s grades increase the more they study, but only up to an extent. [v] Students who studied between 60 and 120 minutes received better grades than those who studied under 60 minutes. However, as soon as students began studying more than 120 minutes, their grades began to fall lower than those who studied between 30 and 60 minutes.

Many areas of life are impacted by the Law of Diminishing Returns, which provides a good reminder that sometimes working smarter is better than working harder.

References

[i] Cannon, E. (1892). The origin of the law of diminishing returns, 1813-15. Economic Journal, 5(2).

[ii] McNall, P. E. (1933). The law of diminishing returns in agriculture. Journal of Agricultural Research, 47(3). 167-178.

[iii] Pencavel, J. (2014). The productivity of working hours. IZA Discussion Paper No. 8129.

[iv] Mold, J. W., Hamm, R. M., McCarthy, L. H. (2010). The law of diminishing returns in clinical medicine: How much risk reduction is enough? Journal of the American Board of Family Medicine, 23(3), 371-375.

[v] Fernandez-Alonso, R., Suarez-Alvarez, J. & Muniz, J. (2015). Adolescents’ homework performance in mathematics and science: Personal factors and teaching practices. Journal of Educational Psychology, 107(4), 1075-1085.

 

Confirmation Bias (Wason)

Summary: Confirmation bias is a cognitive error that people make when they are only willing to accept new information when it confirms what they already believe. People who fall into the trap of confirmation bias tend to purposefully seek out evidence that supports already solidified beliefs and purposefully reject any evidence that goes against those beliefs.

Originator: Peter Wason (1924-2003)

Keywords: inductive reasoning, confirmatory bias, myside bias, verification bias, interpretation, primacy effect, belief persistency, Pollyanna principle

Confirmation bias was first described in the 1960s, when several studies completed by the psychologist Peter Wason showed that people tend to seek out confirming evidence alone when drawing conclusions about simple tasks.[i]

In one of Wason’s first studies, subjects were told by the experimenter that they would be given “three numbers which confirm to a simple rule that I have in mind.” The subjects were asked to come up with an initial hypothesis of what they thought the rule was. They were then invited to write down sets of numbers that they believed conformed to the rule. The experimenter would then tell them if the numbers conformed to the rule or not, and the subjects could note the outcome. The subjects were allowed to repeat this procedure until they believed they had figured out the rule.

Wason was surprised that more than half of his subjects were unable to figure out the simple rule using this method. He believed these people failed because they only tested examples of the numbers that conformed to their original hypothesis. Additionally, they were unwilling to test examples that went against their original hypothesis. Wason coined the term “confirmation bias” and continued to study this cognitive error throughout his career.

Further Research

Research on confirmation bias has continued over the decades, showing a number of interesting results that are detailed as follows.[ii]

  • In general, when developing opinions on a topic, people primarily look for positive cases and resist negative cases.
  • When people make a hypothesis about something, they typically need less evidence for the hypothesis to accept it than evidence against the hypothesis to reject it.
  • People tend to see what they are looking for, even if it’s not there. When people look through data they often find evidence to support their beliefs in ways that are not consistent with actual patterns in the evidence.
  • To confirm their beliefs, people often look at data that is correlated and perceive a higher correlation than is actually present.
  • People have a tendency to believe things that are desirable. This is known as the Pollyanna principle.
  • The more strongly people hold to a belief and the more overconfident they are in that belief, the more likely they are to fall into confirmation bias.
  • People tend to hold on to first impressions, even if future information refutes the original evidence.

Relevant Issues

Confirmation bias is an important issue to understand because of how much it plays into relevant social issues. Confirmation bias impacts peoples’ views on social issues such as race, capital punishment, politics, religion, women’s rights, climate change, vaccinations, and more. The impact of confirmation bias is extensive, leading to many problems and misplaced ideas. Because of this, understanding the concepts behind confirmation bias is crucial for people of all ages and in all walks of life.

References 

[i] Wason, P. C. (1960). On the failure to eliminate hypotheses in a conceptual task. Quarterly Journal of Experimental Psychology, 12, 129-140.

[ii] Nickerson, R. S. (1998). Confirmation bias: A ubiquitous phenomenon in many guises. Review of General Psychology, 2(2), 175-220.

Occam’s Razor

Summary: Occam’s Razor, also known as the Law of Parsimony, is a decision-making philosophy which emphasizes the rationality of simple explanations. If a problem has two possible explanations – a simple one and a complex one – Occam’s Razor rationalizes that the simple explanation is more likely correct.

Originator: William of Ockham (1287-1347)

Keywords: simplicity, Law of Parsimony, Ockham’s Razor, rational, simple explanations, simple hypothesis, scientific inquiry

William of Ockham was a theologian and philosopher who specialized in the area of logic.[i] He spent a lot of time thinking of the best ways to come to logical answers to questions.

Ockham believed that things could only truly be known through self-evidence, experience, or Scripture. In any other situation, Ockham applied his most famous theory, Occam’s Razor. When something isn’t known and there are multiple possible explanations, Ockham believed it was most logical and rational to choose the simpler explanation because it avoided the problem of making assumptions.

Occam’s Razor is most applicable to scientific and mathematical contexts. In many situations, scientists are presented with two or more possible answers to problems or natural phenomenon that they are studying. Occam’s Razor emphasizes creating a working theory around the more simplistic possible answer and concentrating research with that answer in mind.

Occam’s razor is often expressed using the following statement, “Don’t multiply entities beyond necessity.” In other words, keep things as simple as possible, and avoid assumptions and multiple variables as much as possible.

 An Example of Occam’s Razor

An example of Occam’s Razor is often taught to medical students. Professors sometimes tell their students, “When you hear hoof beats, think of horses not zebras.” This statement was coined by Dr. Theodore Woodward, and he used it to teach his students to look for common medical diagnoses over rare ones. When assessing a patient’s symptoms, simpler and more common diagnoses should be considered first. For example, when someone presents with pain in the head, the diagnosis is more likely a headache or a migraine than a brain tumor. When people experience pain in the abdomen, they are more likely experiencing indigestion than cancer. Simple explanations are best.

Occam’s Razor and Scientific Research

Some of the concepts behind Occam’s Razor are still apparent in how scientists go about the process of scientific investigation. This is most applicable in how scientists create hypotheses for a scientific study.[ii] A hypothesis is a scientist’s best guess of what they believe their study will prove. Simple hypotheses are easier to prove than complex hypotheses. A simple hypothesis is one that tests the impact of one variable (the independent) on another variable (the dependent variable). Anytime more variables are added to the picture, the scientific study becomes more complex and the relationships between the variables are harder to prove. By focusing on simplicity – the concept behind Occam’s Razor – scientists can be more accurate and focused in their research.

References 

[i] Spade, P. V. and Panaccio, C. “William of Ockham”, The Stanford Encyclopedia of Philosophy (Winter 2016 Edition), Edward N. Zalta (ed.), URL = <https://plato.stanford.edu/archives/win2016/entries/ockham/>.

[ii] Riesch, H. (2010). “Simple or simplistic? Scientists’ views on Occam’s Razor.” Theoria, 67, 75-90.

Bronfenbrenner’s Bioecological Model of Development (Bronfenbrenner)

Bronfenbrenner’s bioecological model is a theory of educational psychology that studies human development over time.

Urie Bronfenbrenner was a Russian-American developmental psychologist whose bioecological model was integral to the formation of American Headstart pre-kindergarten programs. [1] He was influenced by fellow developmental psychologist Lev Vygotsky. The model suggests the interactions between the individual and their environment, categorized into various systems, shape their development over time.

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Metacognition (Flavell)

Metacognition is defined in simplest terms as “thinking about your own thinking.” The root “meta” means “beyond,” so the term refers to “beyond thinking.” Specifically, this means that it encompasses the processes of planning, tracking, and assessing your own understanding or performance.

The phrase was termed by American developmental psychologist John H. Flavell in 1979, and the theory developed throughout the 1980s among researchers working with young children in early cognitive stages.

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Discovery Learning (Bruner)

Discovery Learning is a method of inquiry-based instruction, discovery learning believes that it is best for learners to discover facts and relationships for themselves.



Contributors

  • Jerome Bruner (1915 – )

Key Concepts

Discovery learning is an inquiry-based, constructivist learning theory that takes place in problem solving situations where the learner draws on his or her own past experience and existing knowledge to discover facts and relationships and new truths to be learned[1]. Students interact with the world by exploring and manipulating objects, wrestling with questions and controversies, or performing experiments.

As a result, students may be more more likely to remember concepts and knowledge discovered on their own (in contrast to a transmissionist model)[2]. Models that are based upon discovery learning model include: guided discovery, problem-based learning, simulation-based learning, case-based learning, incidental learning, among others.

The theory is closely related to work by Jean Piaget and Seymour Papert.

Proponents of this theory believe that discovery learning:

  • encourages active engagement
  • promotes motivation
  • promotes autonomy, responsibility, independence
  • develops creativity and problem solving skills.
  • tailors learning experiences

Critics believe that discovery learning:

  • creates cognitive overload
  • may result in potential misconceptions
  • makes it difficult for teachers to detect problems and misconceptions

Additional Resources and References

References

  1. Bruner, J. S. (1961). The act of discovery. Harvard educational review.
  2. Bruner, J. S. (2009). The process of education. Harvard University Press.