Definition: When increasing resources of effort leads to small results.
Insight: Diminishing returns can eventually turn into negative returns: extra inputs decrease overall output.
Insight: Our capacity for making decisions during each day is to the law of diminishing returns: there is only so much thinking we can do before mental fatigue kicks in. Gathering additional information before making decisions is also subject to diminishing returns - information gathering takes time, and every time we delay we continue to lose value.
Definition: Nonlinear relationships.
Example: Strength training will see rapid progress at the start, and then strength will plateau.
Example: Kleiber’s law in biology shows that animal metabolisms don't scale linearly with size.
Example: Zipf’s law, after George Zipf, shows that the most frequent word used in a language will occur twice as often as the second, three times as often as the third etc.
Insight: To understand the world, we should understand that there are many non-linear relationships, or power laws.
Insight: Power laws govern systems where a change in one variable can lead to a very large change in another, regardless of starting conditions.
Insight: Power laws can have an outsize effect on outcomes when it comes to decision-making - it is important to recognise them quickly and understand the implications.
Insight: There are hundreds of power laws, but they can be summarised into three main categories: (1) Exponential Growth: as quantity increases, the rate at which it grows increases (2) Diminishing Returns: a small result is achieved for increasing amount of effort or resources (3) Long Tail: a large percentage of impact and results are generated by a small percentage of the work or inputs.
Insight: In analysing systems, there are often areas where a small change in input can disproportionately affect the output - tipping points: e.g. the temperature at which water turns to ice.
Principle: Focus on the few variables that have an out-weighted influence on the system.
