I think there are two different aspects at play here with “diminishing returns”. First, there’s the “objective” evaluation that others have mentioned. Spending twice the money won’t give you a soundstage that’s twice as wide, for example. Twice the money won’t get you headphones that give you twice as many details. So in terms of these “technical” attributes, there are diminishing returns on how much more of any one quality you can get from spending more money.

On the other side, there’s another subjective factor working against these “diminishing returns”. I’m sure there’s a psychology term for it, but I’ll call it “the princess and the pea” effect. It comes from the fairy tale of the princess and the pea, with the idea being that a princess raised in luxury and comfy beds would find even a single pea under her mattress to be uncomfortable, while a person raised in normal circumstances with average beds wouldn’t notice that pea. Once someone is beyond the point of diminishing returns, what often happens is that the small objective differences in performance make large differences in that person’s enjoyment. That’s where those 5% differences will make or break someone’s enjoyment of a headphone.

My most recent example of that pea effect is when trying out the Stax SR-X9000 vs the Dan Clark Audio Corina at Capital AudioFest. Both of those headphones are extremely good. If I were to compare them side-by-side in any “objective” quality, they’d come out pretty close. But the Stax was just ever so slightly more open and layered in its positioning and imaging of sounds, and ever so slightly more reverberant with the trailing ends of notes, and slightly more relaxed and airier in its tuning, such that I found it significantly more enjoyable than the Corina. Again, they aren’t that different in absolute performance levels, but in terms of my personal enjoyment of music, it wasn’t even a contest, I’d pick the Stax every day and twice on Sunday (another funny English phrase).