Understanding The World A Little Better Through 20 Principles, Rules & Laws
We've all seen the 80-20 rule in action. These are some of the most important and influential principles and rules that have shaped society as we know it today. Find out how the world of business and society at large is influenced by a set of rules, laws, and principles that you can use.
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We live in a world governed by rules, principles, and laws. They govern the systems we live within, and we either follow these rules or suffer the consequences.
Humans are an ever-evolving entity, and we have constantly evolved from the cavemen days in several different manners.
Through this evolution, we became better at certain things, and that often involved us finding ways to think about them differently.
Our passion for business has led us to experiment with certain things, pushed us to discover new technologies, and even led us to practice scientific theories that have given birth to new inventions, which have improved our lives.
Even individuals push themselves through their career choices, and sometimes they indeed get pushed a bit too far. But without the constant force of innovation and advancement, businesses will not progress as they should.
Evolution is responsible for creating an intelligent and curious being able to adapt and propagate.
Human societies have evolved over time, producing skilled individuals who were able to pursue new heights and accomplish more over centuries of existence.
Society and business are interconnected in a web of relationships which result in the development of rules that govern how the society operates. We are now living in a world where technology is the governing factor.
We have come to label certain actions as normal, but sometimes it is important to remember that these actions have become "a norm" because of the interactions between people in society.
There are close to 7 billion people who are an active part of this social state – with different ideas and ideals, which makes our system more complex than ever.
How has our understanding of the concept of business and society evolved?
I've gathered here concepts created over the years from various fields that can help you better understand society and business.
The Principles, Rules & Laws
This principle is also known as the 80/20 rule, the principle of factor sparsity or the law of the vital few.
It was initially coined by the economist Vilfredo Pareto in relation to the non-uniform wealth distribution in Italy.
It is not considered by many as a law but rather a mere observation. In any case, the principle states that the majority(80%) of the outcome is caused by the minority(20%) of the input or that 80% of the consequences come from 20% (the vital few) of the causes.
Some illustrative examples in sports, technology, and business include:
- 20% of the attendees contribute to 80% of the meeting
- 20% of the workers produce 80% of the result
- 20% of the customers create 80% of the revenue
- 20% of the bugs cause 80% of the crashes
- 20% of the apps are used 80% of the time
- And on and on…
The idea is to understand that things are not evenly distributed; the minority of our actions causes the majority of the outcome.
There is, however, a caveat. The Pareto principle should not be generalized in every context and should be used based on further investigations.
I would not recommend one to blindly apply this principle merely on assumptions. More generally speaking, this law applies to any kind of unequal distribution.
In addition to the Pareto principle, there is another economic law that is often cited in relation to distributions of wealth or income.
This law is known as Price's Law and was formulated by British physicist Derek J. de Solla Price.
The states that 50% of the output is generated by the square root of the people involved in the production process.
In other words, in a given field, whether it is in music, literature, technology, or sport, the list goes on; half of the entire achievement or work can be attributed to the square root of the total number of people involved in the process.
For example, it could mean that :
- In a company with 100 employees, about 10 people get 50% of the work done
- In a certain subject of 20 000 authors, 142 would produce half the publications; thus if 100 000 publications were written, 50 000 would be produced by the 142.
- And on and on…
The difference between Price's law and the Pareto principle is that prices law puts in a relationship between the individuals and the output where Pareto extends more broadly on systems.
Illustration: For a given group of 100 people the price's law says that 10 persons produce half the output, where the pareto principle states that 20 people produce 80 percent of the outcome.
Psychological reactance is the feeling of being restricted or limited by rules or even just the awareness of rules.
It can be a powerful motivator and reaction to persuasion, as well as an influential force in general.
When we're faced with something that limits us or tells us what we can or can't do, it motivates us to push back against that feeling of restriction.
That motivation is called psychological reactance.
You may have experienced psychological reactance when you were a teenager.
In high school, you were required to take certain classes: math, science, and history.
Other subjects, such as art and music, were electives.
If you were like most teenagers, you probably resented having to take math when you wanted to take an art class instead.
You were driven to push back against the limitation that was placed on you by your school system.
Telling someone, they can't do or buy something creates a sense of urgency and, often, a desire for that thing or action in question.
In fact, it's just the opposite of persuasion because people react by doing the exact opposite of what you want.
This is why advertisements will say things like: "don't miss our special sale" or "don't miss out on this! Limited offer!"
The Matthew Principle
The Matthew effect is a phrase coined in the Gospel of Matthew to describe the positive feedback loop that results in advantage compounding over time.
The term was initially extracted from the gospel of Matthew and introduced by Robert K. Merton, who used it as a general name for cumulative advantage or disadvantage.
In his book "Social Theory and Social Structure," Merton explains that in many different areas of life (like religious groups, social movements, science, or business), there is an elite set of leaders who receive the most benefits and rewards.
As a result, they are able to advance even further and obtain more influence than others.
The principle says, to simplify: "the rich get richer, and the poor get poorer." based on a passage in the Gospel of Matthew: "For unto every one that hath shall be given, and he shall have abundance: but from him, that hath not shall be taken away even that which he hath."
The idea is that people who are already successful inevitably become even more successful because they have the connections and resources to do so.
The principle can be applied to many areas of life where there is a hierarchy of success.
For example, someone who has one book on Amazon will usually have another book on Amazon. Someone with one Twitter follower will probably have more Twitter followers, and so forth.
Scoring systems like credit scores also behave this way.
Credit scores may go up over time if you pay your bills on time, but that's not because you're inherently better at managing credit; it's because you've built up a history of responsible behavior on credit accounts, and that's what matters from a scoring perspective.
The 1-9-90 rule
In the internet-dominated era, it is no surprise that such a rule will create a surprise for those discovering it for the first time.
The 1/9/90 rule predicates that on a given social media or content sharing platform, only 1% of the users are content creators, 9% will interact with the content by commenting, rating, or sharing, and the rest — 90% will only consume the content, without participating in creating, sharing or commenting.
This will probably make much more sense if you are in the 1% segment when your video has 1,000,000 views but only 500 likes and comments.
Similarly, we could point out patterns from the law of the vital few, but here less way less than 20% but still the minority contributing to the majority of the content creation.
The pyramid principle is a management model that is quite popular in business and very effective in communicating insights.
However, regardless of the domain, whether business or not, this rule is effective as far as communication is concerned.
The normal way we communicate insights, or at least the way our brain is used to thinking, is that you give the detail, then you give the conclusion.
The pyramid principle is the complete opposite. This principle states that you start with the conclusion and break down how and or why you came to this conclusion.
It is most effective because it catches the attention of the audience and creates the curiosity to want to know more about the reasons behind the conclusion.
The pyramid principle allows one to have more structured thinking. In a nutshell, the pyramid principle is about
- Start with the conclusion or the answer to the problem
- Synthesize your supporting ideas and rationale behind
- Give an order to the overall message so that it flows logically
Next time you have to give a presentation; if, for example, the presentation question is "What should we do to improve X" remember to start with "We should do Y to improve X" and from there support your main point.
The Power Law
This law is all about the power of compounding.
In mathematics, a power law is a functional relationship between two quantities, where a relative change in one quantity results in a relative proportional change in the other quantity, independent of the initial size of those quantities:
The idea is that a small increase over time will yield an enormous amount of output for a sustained period of time.
We predominantly know about it in the field of finance while talking about compound interest.
But this law applies in broad areas of life. The power law is more mathematically advanced than what is being covered in this article, but for the sake of simplicity, we will avoid diving into the mathematical side of things.
The most common occurrence of the power law in science is when a quantity varies as an exponential function of the logarithm of another quantity (for example, the area varies as the logarithm of surface, or mass as the logarithm of volume).
This is called a scaling relationship.
In sociology, the power law relates one variable to another through their rankings in some hierarchy.
For example, the number of words in a book has been observed to be related to its place on the best-seller list – more popular books have more words.
In economics, companies with higher market capitalizations tend to grow faster than smaller companies, and at least some economic variables show exponential growth rather than linear growth.
The same phenomenon has been observed in many other areas: cities are more populous than villages; earthquakes happen more frequently in California than in Kansas; and so on.
The Law of Diminishing Returns
It posits that after a certain level of performance is reached, adding or increasing the factors of performance, all other factors constant, will result in a decrease in output.
The Law of Diminishing Returns is the idea that any activity you do or any process that you follow will eventually reach a point where the positive results (increased sales, improved efficiency, decreased costs, etc) will begin to decrease.
In essence, diminishing returns is when an activity or behavior produces less and less of a particular result over time.
For example, if you make 100 widgets per day and invest $10,000 in new equipment to make 200 widgets per day, this may have some short-term benefits.
However, very quickly, your returns will diminish if you are spending the $10,000 for a minor increase in output.
Diminishing returns applies to many areas of life, including but not limited to business growth, personal finances, and online marketing.
There are multiple examples of this phenomenon in each area as it occurs in everyday life.
Let's take the case for business growth: when businesses experience great growth for a period of time they often reinvest some of those profits into new processes and systems in order to continue growing.
In doing so they hope to take advantage of economies of scale and increase output while keeping costs down.
However, that increased output might come with increased expenses and the cost could be greater than the return.
To see how this applies also in other fields, let's take a look at the effects of increasing advertising on sales.
If you advertise your product to more people, but only marginally increase the number of sales you get, then you are experiencing diminishing returns on your advertising dollars.
The Rule of 70
Sometimes called "doubling time" It is an investment rule that helps one determine the period it will take to double your investment given a certain rate of return.
Like many other rules, it is not perfect and should be used with a pinch of salt. In practice, it's not quite that simple because growth isn't guaranteed to be linear and compounding interest can get messy when the environment change.
The rule of 70 is not just a simple way to calculate how long it will take for your investments to double; it can also be used as a tool for understanding compound interest and exponential growth in general.
To illustrate, suppose you are to invest in $1000 at an annual growth rate of 15%; according to the rule of 70, your investment will double in 70/15, which is 4,66 years approximately 5 years, which is comparable to what you'll earn using a compound interest formula.
Compound interest refers to the phenomenon in which small amounts of money earn interest, which earns more interest, and so on.
This concept is often applied in fields like finance and economics or in everyday life when considering situations like population growth or inflation.
When you consider compounding over a short period of time, it can sometimes be difficult to grasp how quickly exponential growth can occur.
The rule of 70 helps simplify this concept by allowing you to estimate how long it will take one factor (like your money) to double based on another factor.
The Pooling Principle
It is a concept in the field of operations management that posits that pooling of customer demands, along with pooling of the resources used to fill those demands, may yield operational improvements.
Put it simply, in some cases; it is beneficial to allocate a collective demand to a particular resource.
The pooling principle is the concept of aggregating several smaller, similar ideas into a large, more powerful idea.
The pooling principle can be used in business to reduce costs and increase profit. In addition, it can also be used to create new ideas or products.
The pooling principle is commonly used in industries such as manufacturing, mining, and oil rig construction, as well as in the military.
An example of how this concept works in real life is demonstrated by carpooling.
To illustrate, imagine 3 individuals going to the same destination; they have the choice of either using three different cars or a single one for the same journey.
Notice that going with only one car will be more efficient because they are using the same fuel for the same distance while they could have used 3 different cars resulting in 3 different consumption of fuel for the same trip.
According to a study done by the United States Environmental Protection Agency (EPA), carpooling reduces fuel consumption and pollution by more than 20 percent if compared to driving alone.
Gasoline cars are responsible for nearly half of America's carbon emissions and cost Americans $56 billion per year in added expenses due to traffic jams, accidents, and other traffic-related problems.
Carpooling is one way that people can reduce the amount of gasoline they use while helping the environment at the same time.
Like all rules, the pooling principle has its advantages and disadvantages.
In our case, for instance, even though efficient fuel consumption is achieved by using a pooling method, the efficiency would be questioned if the three individuals were traveling to different places.
The Rule of Three
There is a simple rule that writers, speakers, and comedians all follow. It's called the rule of three. What makes it so effective is that it's easy to use, and it works!
The rule of three simply states that whenever you want to make something memorable, the best way to do it is to relate it to other things that are memorable.
The old phrase "three strikes and you're out" comes from baseball, where a batter could only be out on three pitches.
This rule is a writing rule that stipulates that our brain process information on pattern recognition and that three is the magic number that makes things work.
The rule of three applies not only in written communication but also in verbal one.
The Rule of Law
The rule of law is a concept that ensures all people have certain basic rights.
It is a set of systems or institutions that advocates against the use of power for authoritarian, inequality, or unfair practices.
It supports the equality of citizens before the law and enacts an accountability system.
These rights are protected by the state, even if the state itself is oppressive or corrupt.
The rule of law means that citizens can have confidence that they have a defined set of rights, and those rights will be enforced by the state. This is sometimes called the supremacy or supremacy of law.
The rule of law also refers to the legal mechanism by which a country's system of justice is created and enforced.
This can include who has authority to make laws, how they are made, what happens when they are broken, who has jurisdiction over which matters, and how court cases are decided.
In many countries with the rule of law, these matters are established by an independent judiciary whose decisions cannot be overruled except in rare circumstances defined by the law.
The rule of law may be considered as a concept that can be traced back to Aristotle's Politics and his distinction between types of constitutions in which one type exemplified rule by law.
Trying to define it in terms of its meaning is difficult because it can mean different things in different contexts.
Still, most people would agree that The rule of law serves as a check on public officials and helps ensure that no one is above the law.
It's also used as a general term to describe what gives societies structure and stability.
Also known as the bullshit asymmetry principle puts forward the idea that in the realm of human relations, the damage wrought by falsehoods is greater than that caused by bad things well said.
If we analyze this sentence, we understand why it is important. It represents a logical argument made from concepts every human can comprehend.
The fact that we don't often refute statements is a problem because this enables unchecked lies.
It takes a lot more energy to refute nonsense than to produce it. Hence, the world is full of unrefuted lies.
The Plank's principle is the scientific method for better understanding the world.
It states that science and technology progress one funeral at a time. This is because a scientist who has been in the field for a long time has had the time to build up their own thoughts and theories. As well as finding evidence to support them, they also find evidence to back up all the other opinions on a subject, even if those opinions are incorrect.
Scientists don't easily change their views, so science advances not when scientists win or lose arguments but when they die so that younger scientists with more refined views can take their place.
Science works by making falsifiable predictions that can be tested.
If a prediction turns out wrong, then you're wrong, and you have to admit defeat. That's how science makes progress: by weeding out bad ideas and replacing them with better ones.
Sturgeon's law is an adage formulated by the American author Theodore Sturgeon, which states that 90% of everything is garbage.
Sturgeon's law is based on the principle that the initial quality of any newly created work in any field tends to be low quality.
It has been widely quoted in the media to express a given item's poor quality compared to other items available at the time. However, it can be argued that this is a totally inaccurate and subjective way to rate the item based on what is available.
Sturgeon's law has been misused for many years because of its false interpretation.
However, in reality, Sturgeon's law is applied in literary criticism where recent productions are compared to masterpieces or other great works by definition.
In this sense, for example, Sturgeon's law would be applied to the most popular foreign movies from India or China and is a way of saying that it is a bad copy of our own already known Hollywood productions.
This widespread practice has created a counteraction in these countries where critics often draw attention to their own productions by snubbing the impression created by Hollywood.
The Tribal Instincts Hypothesis
The hypothesis suggests that the desire to create social groups with shared goals and identities, as well as the impulse to defend those groups when they are challenged or threatened, is a genetic predisposition that comes from an evolutionary past where group identity was often crucial to survival.
The hypothesis proposes that humans have evolved what the authors call "tribal instincts" as a result of the strong selective pressure placed upon our ancestors over time by living in small groups.
These instincts are intended to create identification with a particular social group and define traits and behaviors which would benefit a person's fitness within that group.
The hypothesis proposes that these tribal instincts are responsible for various reactions, such as aggression towards outsiders or between members of the same group, altruism towards members of one's own group, and sexual jealousy and possessiveness towards individuals who are perceived as threats to one's own mate.
Man Bites Dog
"Man bites dog" is a journalistic term describing an event that is surprising as it is not commonplace. It is literally the opposite of "dog bites man," which describes events that are commonplace or common.
Where the phrase originated is unknown, but it has been used since at least 1970. The phrase has been used to describe a wide range of events, including a man being rescued from the rubble of his home after an earthquake, a priest being caught shoplifting, and a father saving his son from drowning.
The Principle Of Sufficient Reason
The principle of sufficient reason is a philosophical principle which states that, for every fact, there must be a sufficient reason that explains why that particular fact holds.
The principle is frequently applied in cosmological arguments for the existence of God or in discussions of the nature of the mind (that is, its nonexistence is unreasonable or inexplicable).
The principle requires all facts in the universe to have a sufficient explanation. It has been argued that if all facts, including contingent facts, have a sufficient explanation, then it follows necessarily that an absolutely necessary being (such as God) exists.
The PSR can be thought of as a formula that reads, "Everything is either created or caused by something else, and nothing just exists without a cause." In other words, everything must have a cause and an explanation.
If there were ever any part of reality that did not have an explanation, then the total amount of reality would not be complete, and this would violate the PSR. The principle can be understood as "If X then Y," as in if something exists, then it was caused by something else.
The PSR can also be expressed as "Nothing comes from nothing."
Occam's razor (sometimes attributed to William of Ockham) is a problem-solving principle that recommends selecting the solution with the fewest assumptions.
That is, it recommends choosing the answer that requires the fewest new assumptions when multiple answers are possible. To apply this principle using critical thinking, you must understand how best to evaluate proposed answers and make inferences.
When presented with several possible solutions to a problem, your job is to determine which one is supported by the soundest evidence while requiring the fewest new assumptions.
This can help you identify a valid conclusion even when confronted with nontraditional or counterintuitive arguments.
The simplest explanation that covers all of the facts is likely to be correct. You don't have to find an explanation for every piece of data; if you come up with an explanation for 90 percent of what's known, it's unlikely that an additional 10 percent will significantly change your answer.
Occam's razor does not say that simple explanations are always correct — just that simpler explanations are more likely to be correct than complex ones. It is possible for a complex theory to fit all of the facts, but it is also possible for there to be no theory at all that fits all of the facts.
The Laws of Thought
The laws of thought are the most fundamental principles of reasoning and provide an important foundation for logical theory.
These laws are generally agreed upon and make up the backbone of the laws of thought.
Laws of thought are at the foundation of all rational thinking and discourse, especially in science and mathematics.
However, these laws are not necessarily universally accepted. For example, some philosophies do not accept that "contradictions cannot both be true."
Most people take this law to be self-evident, but some philosophers have argued that there is a logical possibility that a contradiction could both be true.
These laws are:
The law of identity: The law of identity is the most fundamental of all the laws. It states that any given thing is what it is and is not something else.
For example, a tree is a tree, and it's not an animal; a book is a book, and it's not a car; you are you, and you're not me; etc.
In formal logic, the law of identity (also known as the principle of identity) states that A = A, where "A" represents any given statement or its equivalent.
The law of contradiction: states that things cannot both be and not be at the same time and in the same way, or that it is impossible for any statement to be both true and untrue at the same time and in the same sense. In other words, something cannot both exist and not exist simultaneously.
This means that something either exists or does not exist but cannot exist and not exist at the same time in the same way.
For example, something cannot be a rock if it also isn't a rock at the same time in the same way – if it exists, then it's also a rock; if it doesn't exist, then it's not a rock either. Nothing can both be A and not-A simultaneously in the same manner.
The law of the excluded middle: The law of excluded middle states that for any proposition, either that proposition is true or its negation is true.
This means any statement is either true or not. There are no other possibilities. The law of non-contradiction states that two contradictory statements cannot both be true.
The law of identity states that any statement is equivalent to itself. That is, a statement and itself must be the same thing. For example, saying "I am Jack" is the same as saying "Jack is I." This means identity statements are always true.
Proper rules and principles will allow you to optimize your way of thinking and improve your ability to come up with ideas that are worth investing in.
I hope these concepts will help you better understand business and society and also serve as a guide to how one must think.
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