Pareto Distribution Definition | Pareto distribution
The Pareto Principle is derived from the Pareto distribution and is used to illustrate that many things are not distributed evenly. Originally written to ...ShareonProbabilityDistributions>WhatistheParetoDistribution?TheParetodistributionisaskeweddistributionwithheavy,or“slowlydecaying”tails(i.e.muchofthedataisinthetails).TheParetodistribution.Image:Danvildanvil|wikimediacommonsTheParetodistribution(createdbythe19thCenturyItalianeconomistVilfredoPareto)isdefinedbyashapeparameter,α(alsocalledaslopeparameterorParetoIndex)andalocationparameter,X.Ithastwomainapplications:Tomodelthedistributionofincomes.Tomodelthedistributionofcitypopulations.However,itcanbeusedinavarietyofothersituations.Forexample,itcanbeusedtomodelthelifetimeofamanufactureditemwithacertainwarrantyperiod.TheParetodistributionisexpressedas:F(x)=1–(k/x)αwherexistherandomvariablekisthelowerboundofthedataαistheshapeparameterYoumightalsoseethiswrittenas:F(x)=1–(kλk/xk+1)αWhenusedtomodelincomedistribution,thisparticularversionoftheformulahasλastheminimumincomeandkasthedistributionofincome.TheSurvivalFunctionMosttextsontheParetofunctionmentiona“survivalfunction,”althoughthisissometimesalsocalledatailfunctionorreliabilityfunction.ThisisjusttheprobabilityofvaluesgreaterthanX.Forexample,youmaybelookingathouseholdincomeintheUnitedStatesandwanttoknowwhatproportionofhouseholdincomeisgreaterthan$1,000,000.TheParetoPrincipleTheParetoPrincipleisderivedfromtheParetodistributionandisusedtoillustratethatmanythingsarenotdistributedevenly.Originallywrittentostatethat20%ofthepopulationholds80%ofthewealth,itcanbeappliedmoreuniversally.Forexample,1%ofthepopulationholds99%ofthewealth.However,itcanbeusedtomodelanygeneralsituationwheresituationsarenotevenlydistributed.Forexample,thetop20%ofworkersmightproduce80%ofoutput.Next:TheParetoPrinciple.CITETHISAS:StephanieGlen."ParetoDistributionDefinition"FromStatisticsHowTo.com:ElementaryStatisticsfortherestofus!https://www.statisticshowto.com/pareto-distribution/----------------------
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