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

While 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. Where true, researchers ignoring power law effects risk drawing false conclusions and promulgating useless advice to practitioners. This because what is important to most managers are the extremes they face, not averages. We show that power laws are pervasive in the organizational world and present fifteen scale-free theories that apply to organizations. Next, we discuss research implications embedded in Pareto rank/frequency distributions and draw statistical and methodological implications.