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The Pareto principle, applied to wealth for example, says that around 20% of the population holds 80% of the wealth. Accordingly, it is said that a person's wealth follows a Pareto distribution.

I'm confused about two things:

  1. The Pareto distribution has infinite support. What is 80% of infinity? Do we consider a finite support?
  2. Doesn't the exponential distribution lead to an even more strict distribution of wealth since the exponential function decays faster than a power law?
kjetil b halvorsen
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ToniAz
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    It might help to think of the Pareto *principle* as a discretization of the Pareto *distribution*. – Mike Hunter Apr 18 '18 at 00:53
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    On the topic of wealth concentration question https://stats.stackexchange.com/q/79784/10479 can be useful. – Yves Apr 18 '18 at 09:56
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    It's 80% of the total of the outcome, not 80% of the support or range possible in principle. – Nick Cox Apr 18 '18 at 13:15
  • @NickCox Thank you for your answer. I'm afraid I did not understand. What does total outcome mean? – ToniAz Apr 18 '18 at 17:22
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    Total outcome could mean total _income_ (word play here is accidental). It could mean total wealth, total pollution, total production, whatever. The principle can't apply unless it makes sense to talk about totals. – Nick Cox Apr 18 '18 at 17:26
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    @Yves That link was very helpful. I was only thinking of the Pareto distribution with shape = 1, thus infinite means. – ToniAz Apr 18 '18 at 17:36

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