The law of diminishing returns is the threshold at which productivity (or happiness) starts to plateau and may even reduce. It is related to what economists refer to as the point of marginal utility—where more input does not necessarily produce a corresponding increase in output.
A lesson from history
The Byzantine (Roman) empire was possibly Europe’s most powerful economic, cultural and military force. The empire began in the 4th century AD and lasted until the Romans lost the Battle of Constantinople in 1453. The fall of Constantinople is a story with an interesting twist to it.
Why you shouldn’t leave the door open
When the Ottomans, led by Sultan Mehmed II, attacked Rome in 1453, the Roman emperor Constantine XI had a difficult task on his hands. He had limited resources to defend the city against a much more powerful and organized enemy. But, while Constantine lacked resources, he had robust architecture to back him up in the form of solid city walls.
Widely recognized as the most formidable walls in all of Europe, Constantine was confident of using the city’s structural assets to defend against the enemy’s attacks while he waited on his neighboring allies to send in reinforcements.
And the strategy seemed to work. Even with their superior forces and massive cannons, the Ottomans were unable to enter the city, thanks to the impassable walls surrounding the city of Constantinople. But just as things were starting to look bleak for the Ottomans, they discovered a strategic goldmine.
The Romans had left one of the smaller gates to the city unlocked! So, instead of trying to break open the seemingly impenetrable walls, the Sultan simply rerouted his troops to enter the city through the open gate. And that, in a nutshell, was the end of the Byzantine empire.
Doing too much
You could argue that the fall of the Roman empire was inevitable in the face of the growing threat from the Ottomans. Historians believe the end could have at least been delayed for a while had Emperor Constantinople XI focused his attention and energies on the one chance he had of saving the empire—by fortifying and defending the city’s walls. Instead, under pressure, he tried to do too many things.
The Roman king’s error was in overburdening an already dwindling force by allocating them additional responsibilities. It was only a matter of time, then, before someone forgot to do something trivial but essential. Like locking the gate.
If the lesson you took away from this historical incident is to never leave your house without locking up, I commend you. Good thinking. I’d like to focus on something a little more subtle, though.
Constantinople’s fall is a classic lesson on how to understand your limitations. And why it’s crucial to focus and get to done instead of trying to do too much. Because, beyond a threshold, the law of diminishing returns kicks in. No matter what you do.
The law of diminishing returns
The law of diminishing returns, also known as the marginal utility theory, is a concept borrowed from Economics. According to this law, after you reach an optimal level of capacity, adding more input will result in a smaller increase in the output.
For instance, you can keep adding workers to a factory to increase the production capacity, but after the threshold or optimal capacity is reached, adding more workers will not cause a corresponding increase in output. Instead, it could result in less efficient operations.
Think of a busy technology store with customers waiting in line to ask product-related questions. Customers could get disgruntled if there are too few customer service representatives available to answer questions. But adding too many employees isn’t the answer either, because they are likely to be idle most of the time.
Or think of working through the night trying to solve a problem. Adrenalin will keep you pumping until a certain point in time, after which your brain is ready to shut down. If you keep attempting to crack the problem in a tired state, the odds are you’ll hardly make any progress. Instead, you increase the prospect of committing blunders and possibly even undoing some of the work you already did.
The law of diminishing returns is universal, and it applies to every aspect of human enterprise, including psychology and happiness.
The symptoms may differ:
- Continuing to eat after you are full
- Throwing money into businesses that are clearly failing
- Lecturing your teen for the fifth time when they already tuned you out after the first
- Rewriting and re-editing your draft for the 100th time instead of submitting it
But the results are the same:
- Disappointment and exhaustion
I’ve never seen, read, or heard of anyone having success when they continue to work on a task beyond the point of diminishing returns. I bet you haven’t either. Yet, we sometimes keep going even when the writing is clearly on the wall. We act like it’s going to be different this one time. There are two reasons for such skewed thinking:
- We don’t have a clear definition of what “done” looks like, and so we trudge on and on
- We don’t know when we’ve reached the point of diminishing returns
Realize when to stop
Here are five principles to help us recognize the law of diminishing results and avoid sub-optimal results.
1. Define your done
Sounds so obvious but rarely do we pause to come up with clear definitions of what “done” means to us. Most of us operate on vague goals and expectations.
- Lose weight
- Publish a book
- Exercise more
- Build great relationships
- Get rich
Whatever your goal is, it pays to be more specific. Set SMART goals. The trick is to move away from vague to specific goals.
Clear goals help us measure and course-correct and help us understand when we’re at the point of diminishing returns.
Instead of Lose weight, define the goal as Get to xxx lbs.
Get rich could be reframed as having xxx dollars in the retirement account.
Publish a book could be Write a 250-page book in the xxx genre.
Defining what done looks like is extremely important, especially for those with perfectionist tendencies. If you’re in the midst of a decluttering project, for instance, it could go on for eternity if you haven’t clearly defined what your end decluttered state looks like.
Once we know and articulate what done looks like, it’s easier to get started and make progress on the task. Then, we can evaluate if we’re making progress, overreaching, or simply dawdling.
2. Don’t move the goalpost
Once you’ve defined your done, stick to it. Don’t move the goal post (change the rules in the middle of the game.)
Moving the goalpost makes it much harder to identify when you’re at your point of diminishing returns. In fact, changing goals midway can itself be demoralizing enough to kickstart the process of diminishing returns.
Let’s say you decide to pay your child a dollar a week to have her help you do some chores around the house. You agree to the list of chores—unloading the dishwasher and folding the baby’s laundry. Now, when the chores are done and it’s time to pay up, don’t suddenly say, “By the way, I’ll pay when you put away the laundry in the baby’s closet.” You will likely lose your little helper, or worse, create a disgruntled and hard-bargaining negotiator the next time you need help.
IT project managers are all too familiar with this concept. They call it scope creep. It is the bane of thousands of projects that don’t make it to finish on time and why millions of dollars go down the drain. All because people change their minds about what they want partway through a project.
3. Beware of hedonic adaptation
Novelty wears off. Fast. All the time. The technical term for this phenomenon is hedonic adaptation.
This is the theory of hedonic adaptation:
A positive (or even negative) event can cause a subsequent positive (or negative) increase in people’s feelings. But eventually, everyone returns to a relatively stable baseline.
The Beatles song, “Money can’t buy you love” is one of the top six Beatles songs ever recorded. It’s true. Money can’t buy you love. Or happiness.
In a famous study in 2010, Nobel prize-winning psychologist Kahneman concluded that while “low income is associated both with low life evaluation and low emotional well-being,” incomes beyond 75,000 USD (in 2010 terms) did not contribute to an increase in happiness.
We see this all the time.
Material possessions lose their sheen soon. How excited were you when you bought your new designer outfit? But after it hangs in your closet for a week or a month, does your excitement taper? How about a year later? Do you even notice the outfit?
Diminishing returns set in early for material possessions. We are excited and happy when we have new “stuff,” but such happiness is short and plateaus very quickly.
As someone who’s always worked on a small laptop, I was excited when I bought home a new widescreen monitor. For the first few days, I thought it was the greatest thing since sliced bread. But soon enough, I got used to it. I don’t go “Booyah – what a great monitor” every time I turn it on.
That is hedonic adaptation. It is real. And never fails to show up.
4. Don’t overindulge
You’ve probably heard the statistic: a new car starts to lose value the minute you drive it off the dealer’s lot. New cars depreciate at a rate of 15-20% each year. Happiness (related to new possessions) devalues almost as quickly.
Knowing how quickly diminishing returns set in for material goods, you can make it easier on your conscience AND your wallet by not overspending or overindulging in expensive items. The pleasure is fleeting, but the pain can be lasting.
Overconsumption is a problem in so many ways. But one underreported side effect of excess consumption is how quickly the law of diminishing returns sets in on consumable items. Remember this before you hand out your credit card for that next major purchase.
5. Stop flogging a dead horse
Anyone with teens in the house will agree—instead of lecturing your teen yet again on keeping their room clean room, you may be better off trying to redecorate/repaint the room to make the mess appear like it’s an abstract art show.
I’m kidding. Kind of.
Instead of mechanically starting a task, ask yourself if you’re flogging a dead horse. Figuratively, of course. That’s how you will know whether you are making progress or simply past the point of diminishing returns.
- Before mindlessly shoving another forkful into your mouth, ask yourself if you’re really hungry.
- If you’ve already made your point to your colleagues in an email, think twice about calling another meeting to restate what was in the email.
If in doubt, stop. Seek clarity. Ask for a second opinion, if needed. But whatever you do, just don’t reflexively continue on the path you were because that’s the surest way to work past the point of diminishing returns.
I remember taking my then-toddler to the pediatrician years ago when I noticed she had a tinge of cartoonish orange color in her cheeks. Apparently, I was an overzealous mother who fed her child one too many carrots. The side effect of all the carrots? The orange color. It’s a condition called carotenemia. The excess beta-carotene gets stored under the skin and can turn it orange. Thankfully it wasn’t bad enough and resolved itself soon. And I stopped putting carrots in everything.
The point is this: Too much of anything is good for nothing.
The law of diminishing returns is universal. Beyond an optimal threshold, marginal utility starts to decrease. In everything.
A twenty-dollar bill may mean a lot to someone who doesn’t have a lot of money. On the other hand, the money may evoke no sentiment for a multimillionaire.
Understanding that all our activities are subject to the law of diminishing returns can help us make better decisions. Like not eating the sixth slice of pizza. Or not buying another pair of black pumps.