We Need to Let Go of the Bell Curve

Most human activities as well as many disciplines — from physics and biology to linguistics, finance, and computer science — follow a Pareto distribution instead of a “normal” Gaussian curve. In Pareto distributions, a small change in one variable is associated with a large change in another, because it reflects variables multiplied with each other rather than added to each other, as in the normal distribution. This is also referred to as a “power law.” This isn’t an obscure intellectual point, but instead carries serious practical consequences. Because of this error, our approach to most problems is, at best, suboptimal. What does this mean for business leaders? The author presents three practical implications for innovation, risk management, and people.

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