Law Of Diminishing Returns?

Diminishing returns is a term of art in economics originating with Jeremy Bentham. A classic example is that for most people, the fifth ice cream cone they consume today will have less value than the first or second. it is not linear, and it does not kick in from the first dollar spent. Someone who upgrades from the IEMs that come with a Samsung phone to a $200 pair of IEMs might gain a net higher return from that additional investment. Where diminishing returns begin to be felt is subjective. We might hypothesize that they begin to kick in at the point where someone is 75% satisfied with all parts of her $10K audio system, and is considering an upgrade to gain an extra 20% of satisfaction. Generally speaking, an economist would say that if she has to spend $20K to gain that extra 20% of satisfaction, returns to investment are objectively diminishing. That certainly does not mean, however, that she shouldn't spend the extra money to improve her system. That depends on her bank balance, her subjective valuation of the additional 20% in satisfaction, and her opportunity cost (what else she might do with that amount of money instead of spending it to improve her audio system).  

I had a friend that went through a similar process at great expense.

I took him to a local shop that has a heritage system consisting of original Quad ESL speakers and amplification. The owner played some acoustic music and my friend jusy said "Fzck!" because the reproduction of strings was so amazingly realistic - better than his megabuck system.

Third post nailed it (mulveling). Is that $10k cartridge THAT much better? Only if the rest of your system is.

I think what sets my threshold for diminishing returns lower than many other audiophiles on this forum has to do with unrealistic expectations on my part. Just to throw out a number, I’ll say that an affordable system for me will get me 65% towards what my mind might idealize as the ultimate in reproduced sound. I expect a very high end system in an excellent room to get me to 95%. It instead gets me to 75%. Some of the major shortcomings of 2 channel audio recordings, which are what I listen to mostly, are still plainly evident to me, even on the best recordings. It’s like I’m expecting a $1,000,000 supercar to be able to silently hover and fly me across oceans at supersonic speeds. Instead, it just rolls along on the ground like my Nissan, faster and a lot classier but no where near as fast as I’d really like to go, or expect to go for $1M. A car is a car, not an anti-gravity flying machine. The truth is, $1M isn’t really all that much money in the grand scheme of things. I just don’t have that much so my expectations are inflated. 

The concept of diminishing returns does apply to the audio world.  However, "hifi sound" is entirely subjective.  Most people will tell you they're getting it for < $1000.  A few people will tell you that you can't get it for $100,000.  They're both right - they just have different standards, and there's nothing wrong with that.