"why are we so willing to pay for such heavy diminishing returns?"
Logically it makes no sense, that last 5 to 10 percent, why lose an arm and leg over it?
At least I myself love to tinker. Upgrading is fun as long as I get to a state I'm truly happy with, forget the gear and enjoy the music. Side-grades are not good and a system always in flux doesn't fit my bill either. My mobile rig is there, my uber rig probably by the end of the year and the one in the middle is taking shape too.
Aside from collecting books it's my only hobby. And The budget needs to comfortably fit. Budget trumps desire.
Hifi is also my longest running hobby at 30+ years and I would not necessarily subscribe to the ”last 10%“ view. In my experience, a ’0-100‘-yardstick to measure against does not exist.
System price ranges and what we value in music reproduction matter. Technology moves too over the years.
I value emotions, insight into the music, being happy while listening, feeling good or miserable depending on the message of the record, being transported away and just being with this marvelous human creation – music.
I come from the 2-channel world and had an uber setup there, which grew over 20 years. And I had the pleasure to hear some amazing systems in other homes.
What to judge by?
Enjoying the music? Feeling satisfied? That's possible with a well put together hi-fi system in almost any price range. It's a question of mindset. I love the moments with my mobile rig as much as the moments with the stationary setups.
Audiophile criteria? Which ones? Then system price ranges do matter. And in the 2-channel world the jumps in quality of reproduction between price ranges is astounding. I know from in depth personal experience up to setups well in the six figures. The higher the price tag the more it matters what one optimizes for and how harmoniously the components are put together. An uber system can suck, it can be so-so and it can induce pure bliss.
The differences might not be as pronounced with head-fi. I do know however after seriously upgrading from a dCS Bartók the improvements in my book were more than worth it and positively material. Investment went up a ton. But then, if wallet allows no harm done. Except for potentially becoming a target of envy.

How do I value the ability to comprehend the inexpressible in the music? Musicians can, but I'm not one of them and it is wonderful to explore the inexpressible in so many works. How valuable is it to really approach analog playback and not yearn for a record player anymore? I owned and loved a rare player right up my ally for some years. What's the value of being easily taken away into music after a long day with a sober mind? How to value being so enveloped in music that the mind quiets down and wanders less and less from music? All these qualities are hard to put on a scale and some click in only in a step-change.
You pose a question which is complex to answer.

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