From Gaussian to Paretian Thinking: Causes and Implications of Power Laws in Organizations

Andriani, P.; McKelvey, B.

Abstract

Although normal distributions and related current quantitative methods are still relevant for some organizational research, the growing ubiquity of power laws signifies that Pareto rank/frequency distributions, fractals, and underlying scale-free theories are increasingly pervasive and valid characterizations of organizational dynamics. When they apply, researchers ignoring power-law effects risk drawing false conclusions and promulgating useless advice to practitioners. This is because what is important to most managers are the extremes they face, not the averages. We show that power laws are pervasive in the organizational world and present 15 scale-free theories that apply to organizations. Next we discuss research implications embedded in Pareto rank/frequency distributions and draw statistical and methodological implications.

Citation

Andriani, P., & McKelvey, B. (2009). From Gaussian to Paretian Thinking: Causes and Implications of Power Laws in Organizations. Organization Science, 20(6), 1053-1071. https://doi.org/10.1287/orsc.1090.0481

• Journal Article Type: Article
• Publication Date: Nov 1, 2009
• Deposit Date: Mar 24, 2010
• Publicly Available Date: Sep 22, 2014
• Journal: Organization Science
• Print ISSN: 1047-7039
• Electronic ISSN: 1526-5455
• Publisher: Institute for Operations Research and Management Sciences
• Peer Reviewed: Peer Reviewed
• Volume: 20
• Issue: 6
• Pages: 1053-1071
• DOI: https://doi.org/10.1287/orsc.1090.0481
• Keywords: Pareto, Power law, Gaussian statistics, Organization, Average, Extreme events, Scale-free theory.
• Public URL: https://durham-repository.worktribe.com/output/1522981