Inverted law of diminishing returns?

[magiccarpetride]

We all know the law of diminishing returns -- after certain level of quality has been reached, further investments in improving the quality will yield lesser and lesser and lesser returns. Until it reaches such plateau where even enormous investment does not make one iota of improvement.

Applied to hi fi, this law holds that once we purchase relatively high quality equipment (decent turntable, arm, cartridge, phono, preamp, amp, speakers, interconnects, power cables, speaker cables etc.), spending more money on any individual component will not bring us as great of an improvement as we've got when we've upgraded from the ho-hum mid-brow equipment to the more advanced equipment.

But I'd be prepared to challenge that thinking. I recently got a hunch that, once we reach certain level of quality in audio equipment, upgrading any component tends to yield much more dramatic improvements than if we were to upgrade that same component back when we had a mediocre, ho-hum system.

For example, after I've built a pretty decent hi fi system, I reached a point where I felt there isn't much more I could do to improve the quality of the sound. Then, for a lark, I ordered Jelco tonearm to replace my Rega RB300 tonearm. I was certain that the differences between Rega and Jelco will be minimal, if not negligible. But much to my pleasant (nay, delirious) surprise, Jelco elevated my entire audio chain to a whole new level. This upgrade (paid double the price of Rega) improved the quality of sound manifold (meaning, much more than double).

So in the end, I'm starting to think that, at this level, the law of diminishing returns becomes inverted, so that the law of increasing returns suddenly comes into effect.

[struth]

Think you have to go up the chain before it clicks in, assuming the expensive gear the person has is any good, and not just bling. Jelco is a big improvement over a rega imo

[southall-1998]

At the end of the day. Trust your ears!

S.

[Barry]

Think you have to go up the chain before it clicks in, assuming the expensive gear the person has is any good, and not just bling. Jelco is a big improvement over a rega imo

Agree!

[Sherwood]

We all know the law of diminishing returns -- after certain level of quality has been reached, further investments in improving the quality will yield lesser and lesser and lesser returns. Until it reaches such plateau where even enormous investment does not make one iota of improvement.

Applied to hi fi, this law holds that once we purchase relatively high quality equipment (decent turntable, arm, cartridge, phono, preamp, amp, speakers, interconnects, power cables, speaker cables etc.), spending more money on any individual component will not bring us as great of an improvement as we've got when we've upgraded from the ho-hum mid-brow equipment to the more advanced equipment.

But I'd be prepared to challenge that thinking. I recently got a hunch that, once we reach certain level of quality in audio equipment, upgrading any component tends to yield much more dramatic improvements than if we were to upgrade that same component back when we had a mediocre, ho-hum system.

For example, after I've built a pretty decent hi fi system, I reached a point where I felt there isn't much more I could do to improve the quality of the sound. Then, for a lark, I ordered Jelco tonearm to replace my Rega RB300 tonearm. I was certain that the differences between Rega and Jelco will be minimal, if not negligible. But much to my pleasant (nay, delirious) surprise, Jelco elevated my entire audio chain to a whole new level. This upgrade (paid double the price of Rega) improved the quality of sound manifold (meaning, much more than double).

So in the end, I'm starting to think that, at this level, the law of diminishing returns becomes inverted, so that the law of increasing returns suddenly comes into effect.

Many people have a general albeit imperfect understanding of the Hypothesis of Diminishing Marginal Returns and its variant forms. Originally developed to describe the relationship between physical inputs and outputs in a production process, it is defined in Encyclopaedia Britannica as follows:

"Diminishing returns, also called law of diminishing returns or principle of diminishing marginal productivity, economic law stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output."

The concept is often confused with a related concept of returns to scale which refers to the potential benefits in terms of input/output ratios of scaling up production per se (i.e. increasing all inputs simultaneously). The "diminishing returns" concept has been "borrowed" in recent years and used to evaluate price/performance ratios. The application of the concept assumes that it is possible to arrive at some consensus on performance and to develop reliable and valid measures of performance (e.g. subjective sound quality). To be precise, the concept does not imply that performance does not increase at all with each additional £ spent, only, that after a certain point, that performance does not increase at the same proportionate rate as spending. If it did, the price/performance ratio, when plotted, would be a straight line.

Of course, when applied to hifi systems, we cannot reasonably plot a continuous price/performance curve, but we can plot points on a curve representing particular hifi system combinations. I have made the point on this forum before, but few would seriously argue that a £10k system is twice as good as a £5k system. The issue is whether an individual values the difference in performance as being worth £5k. Your example is misleading and, forgive me, somewhat confused. You are referring to incremental benefits to an existing system whereby the earlier costs are "sunk costs" and therefore no longer relevant. The question that you are asking is whether you can improve an existing system by a modest investment in upgrading an individual component. It has little to do with the general concept of diminishing marginal returns or its (mis)application to price/performance investment choices.

Geoff

[Jazid]

Many people have a general albeit imperfect understanding of the Hypothesis of Diminishing Marginal Returns and its variant forms. Originally developed to describe the relationship between physical inputs and outputs in a production process, it is defined in Encyclopaedia Britannica as follows:

"Diminishing returns, also called law of diminishing returns or principle of diminishing marginal productivity, economic law stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output."

The concept is often confused with a related concept of returns to scale which refers to the potential benefits in terms of input/output ratios of scaling up production per se (i.e. increasing all inputs simultaneously). The "diminishing returns" concept has been "borrowed" in recent years and used to evaluate price/performance ratios. The application of the concept assumes that it is possible to arrive at some consensus on performance and to develop reliable and valid measures of performance (e.g. subjective sound quality). To be precise, the concept does not imply that performance does not increase at all with each additional £ spent, only, that after a certain point, that performance does not increase at the same proportionate rate as spending. If it did, the price/performance ratio, when plotted, would be a straight line.

Of course, when applied to hifi systems, we cannot reasonably plot a continuous price/performance curve, but we can plot points on a curve representing particular hifi system combinations. I have made the point on this forum before, but few would seriously argue that a £10k system is twice as good as a £5k system. The issue is whether an individual values the difference in performance as being worth £5k. Your example is misleading and, forgive me, somewhat confused. You are referring to incremental benefits to an existing system whereby the earlier costs are "sunk costs" and therefore no longer relevant. The question that you are asking is whether you can improve an existing system by a modest investment in upgrading an individual component. It has little to do with the general concept of diminishing marginal returns or its (mis)application to price/performance investment choices.

Geoff

TLDR

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[Sherwood]

TLDR

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That is why the concept is so frequently misunderstood!

Put more succinctly: concept misunderstood and inappropriately applied! Inverse of diminishing returns is increasing returns to scale but again not relevant to this example!

Geoff

[magiccarpetride]

Many people have a general albeit imperfect understanding of the Hypothesis of Diminishing Marginal Returns and its variant forms. Originally developed to describe the relationship between physical inputs and outputs in a production process, it is defined in Encyclopaedia Britannica as follows:

"Diminishing returns, also called law of diminishing returns or principle of diminishing marginal productivity, economic law stating that if one input in the production of a commodity is increased while all other inputs are held fixed, a point will eventually be reached at which additions of the input yield progressively smaller, or diminishing, increases in output."

The concept is often confused with a related concept of returns to scale which refers to the potential benefits in terms of input/output ratios of scaling up production per se (i.e. increasing all inputs simultaneously). The "diminishing returns" concept has been "borrowed" in recent years and used to evaluate price/performance ratios. The application of the concept assumes that it is possible to arrive at some consensus on performance and to develop reliable and valid measures of performance (e.g. subjective sound quality). To be precise, the concept does not imply that performance does not increase at all with each additional £ spent, only, that after a certain point, that performance does not increase at the same proportionate rate as spending. If it did, the price/performance ratio, when plotted, would be a straight line.

Of course, when applied to hifi systems, we cannot reasonably plot a continuous price/performance curve, but we can plot points on a curve representing particular hifi system combinations. I have made the point on this forum before, but few would seriously argue that a £10k system is twice as good as a £5k system. The issue is whether an individual values the difference in performance as being worth £5k. Your example is misleading and, forgive me, somewhat confused. You are referring to incremental benefits to an existing system whereby the earlier costs are "sunk costs" and therefore no longer relevant. The question that you are asking is whether you can improve an existing system by a modest investment in upgrading an individual component. It has little to do with the general concept of diminishing marginal returns or its (mis)application to price/performance investment choices.

Geoff

My hypothesis is that maybe this principle of reaching diminishing returns is not applicable. When common sense prevails, we usually tend to go with 'good enough'. Why should I pay $3,000 for a turntable when a $300 one is 'good enough'?

The idea behind this line of reasoning is that if I spend ten times more money I will definitely not attain ten times better sound quality.

But I think that line of reasoning is faulty.

[Sherwood]

My hypothesis is that maybe this principle of reaching diminishing returns is not applicable. When common sense prevails, we usually tend to go with 'good enough'. Why should I pay $3,000 for a turntable when a $300 one is 'good enough'?

The idea behind this line of reasoning is that if I spend ten times more money I will definitely not attain ten times better sound quality.

But I think that line of reasoning is faulty.

Although I am an economist I don't feel the need to explain every spending decision in complex economic terms. However, I do feel the need to explain when an economic hypothesis is inappropriately applied.

It may be the case in the example that you cite that an investment in a particular component only makes sense in the context of a better hifi system because in a lesser system the benefits cannot be heard. This is about synergy and the "weakest link" in the chain. However, it is inappropriate to try and frame this in terms of the DMR hypothesis.

A more fundamental problem in analysing input/output relationships in relation to hifi investment decisions is that of getting any consensus on how to measure the output side of the equation (i.e. sound quality). Sound quality is inherently subjective and multifaceted. It may be possible to consistently rank systems in terms of specific aspects of performance (e.g. dynamic range, bass extension etc) on an ordinal scale. However, it is much more difficult to express performance in cardinal terms, let alone as a composite index with the necessary subjective weightings inherent in any index.

Geoff

[jandl100]

TLDR

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Sorry, James - you're a good guy, but that response is just plain rude.
Far too reminiscent of the bully-boy days of a certain other forum.