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

Authors:
Pierpaolo Andriani;Bill McKelvey
Affiliations:
Durham Business School, Durham University, Durham DH1 3LB, United Kingdom, and eBMS-ISUFI, Universita' del Salento, Italy;UCLA Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095
Venue:
Organization Science
Year:
2009

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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.