Know the sweet spot

After reading this article, you’ll learn:

1. What is the law of diminishing returns

2. Why you should know about it.

3. How you can use this concept to be a better thinker.

Imagine this: you feel like going to a buffet lunch tomorrow. So you starve yourself (so you can eat as much as possible 🙂 ), have a light dinner, no breakfast and arrive at the restaurant. You’re hungry so you start gobbling the different dishes, and experience a satisfaction as your hunger fades.

You enjoy the different flavors, textures and the experience for a while. As you try more and more dishes, you notice that you don’t seem to be enjoying them as much as when you started eating.

You plow through - after all, you paid for an unlimited lunch! Soon you realize that you feel really uncomfortable and if you don’t stop, bad things might happen 🤢 

This is an example of the law of diminishing returns - an economics principle. It says that in any system of production, there comes a point where increasing the quantities of one input while holding all other inputs constant yields progressively smaller output results.

But why should you know about this?

Apart from knowing when to stop eating at a buffet, this principle holds good in many areas of life. Knowing about it will help you stop pouring valuable, finite resources..:

• Your mental health

• Energy

• Money

• Time

....into a project and will free you up to focus on other valuable ideas. Most importantly, it will save you from becoming a perfectionist.

How you can use this knowledge to your advantage:

I feel this idea is connected to the Pareto principle - don’t try to do everything. Focus on the vital few which will give you most of the results.

A key point in the law of diminishing returns is that, many people think that the relationship between effort and reward is 1:1. Most of the time, this is not the case.

• Travel - I love to travel, but if I travel 365 days in a year, it won’t be fun at all. I’ll start to hate it.

• Dating - if you’re in the market for a significant other, going on a few dates is going to be fun. But if you’re looking for a new girlfriend every month, then things get meaningless pretty soon.

• Money - If you make $20,000 / year, it would be great to make another $20,000. But if you make $200,000 / year, it won’t be as great to make $220,000/ year.

• Productivity - I can focus deeply for 4 Hrs. / day. But if I continue to slog, I’ll burn out for sure.

How to use this in your daily life:

1. Set a clear goal.

   A good framework for this is SMART goals. It stands for:

   • Specific

   • Measurable

   • Achievable

   • Realistic

   • Timely

   e.g. I want to start practicing guitar and play my favorite song within the next 3 months.

2. Determine the optimal level of effort or input.

   This may need some trial and error. You can also speak to someone experienced in the task.

   I’ve been guilty here of spending too much time reading about the thing than doing the actual thing.

   e.g. for the guitar example, you can speak to your guitar tutor.

3. Monitor your output.

   Use proper metrics. It may be quality, quantity or satisfaction you get from your inputs.

   e.g Are you practicing regularly?

4. Seek constant feedback.

   Regularly assess the return on your investments - time, money or effort. Are you noticing the output expected? After some time, if you notice diminishing returns, it’s time to pause and re evaluate your approach.

   e.g. in the guitar practice example, ask your tutor for feedback. Play for your friends regularly and ask them if they notice a difference. Unless you get your art in front of the world, you won’t get feedback.

5. Learn how to pivot.

   A plan is the starting point. In the real world, many things are unpredictable, and things don’t always go as per the plan. When you notice something isn’t working, it’s time to pivot.

   e.g. if you’re practicing in the evening, you may be exhausted after the day’s work. Try to practice in the morning / in between work sessions. A change of place and time can do wonders.

6. Seek balance.

   Balance is critical to avoid diminishing returns. Avoid extremes and realize that moderation leads to optimal outcomes.

   e.g. While practicing the guitar, it is important to balance practice with rest, and also seek inspiration from your favorite artistes.

In a world where the quest for more is incessant, the Law of Diminishing Returns stands as a guiding principle. Knowing when to stop, reassess, and optimize can be the key to sustainable success and personal well-being. Embrace this law, and let it be your compass in the journey of smart decision-making.

I hope this knowledge helps in your personal and professional life. And if so, share the article with your friends and family.

Further reading:

1. Law of Diminishing Marginal Returns: Definition, Example, Use in Economics.

2. What Is The Law Of Diminishing Returns and Why Does It Matter?