EO4 Diminishing Returns

When damage is calculated, the game makes it so that stacking damage boosts together (and defense boosts) won't be as effective. There are 4 kinds of multipliers that get affected by this. Active damage, which (mostly) come from damage buffs. Passive damage, which comes from passive skills that increases damage dealt. Active defense, which come from defense buffs. And finally, passive defense, which come from passive skills that reduce the damage taken.

For active damage multipliers, multipliers after the first one gets reduced by 5%. And the 5% reduction increases for every buff that gets stacked. The reduction only applies to the weaker buffs, so it doesn't matter what order the buffs get cast in. If a buff provides a 1.35 multiplier to damage and another buff provides a 1.2 multiplier the buff that provides the 1.20 multiplier will always be hit by the 5% reduction first. To give an example:

If you're using 3 buffs that multiply damage output by 1.3, instead of the calculation going like this:

1.3 * 1.3 * 1.3 = 2.197

The calculation does this instead:

(1.3 - (0.05 * 0)) * (1.3 - (0.05 * 1)) * (1.3 - (0.05 * 2))

Which would equate to this:

1.3 * 1.25 * 1.2 = 1.95

The same applies to passive damage multipliers. Only instead of a 5% reduction, it's a 2% reduction for each passive that gets stacked.

For active defense multipliers, the multipliers are actually less than 1, so they can reduce the amount of damage taken. In this case, the multipliers are increased by 5% instead. To give another example:

If you're using 3 buffs that multiply damage taken by 0.8, instead of the calculation going like this:

0.8 * 0.8 * 0.8 = 0.512

The calculation does this instead:

(0.8 + (0.05 * 0)) * (0.8 + (0.05 * 1)) * (0.8 + (0.05 * 2))

Which would equate to this:

0.8 * 0.85 * 0.9 = 0.612

Likewise, the same applies to passive defense multipliers. Only instead of a 5% increase, it's a 2% increase for each passive that gets stacked.

However, if diminishing returns would drag an attack multiplier below 1, the game forces the multiplier to become 1.01, meaning that you will always benefit from any buffs and passives, no matter what the situation.

Likewise, defensive multipliers are also affected, though in their case if they rise above 1, the multiplier is forced to become 0.99 instead.

Below will be the list of what type of multiplier the skills far under, and to what damage types the skills affect to make tracking what these skills do easier.

Diminishing Returns does not care about what damage types the increases effect, just the number of increases they are going through.

Likewise Diminishing Returns only activates once more increases of the same category are active. For example, 2 Active Damage modifiers will have one of the modifiers suffer Diminishing Returns, however 1 Active Damage and 1 Passive Damage modifier will have both modifiers apply their full effects.

Diminishing Returns only affects damage manipulation. Other mechanics such as increasing how much healing does, critical hit rates, accuracy, and evasion, are not affected by this system.

Active Damage
The Landsknecht's Proficiency/Expertise/Enlightenment: Physical, Elemental, Almighty
Vanguard: Physical
Shadow Bite: Physical (A multiplier is applied when attacking enemies with ailments)
Foul Mastery: Physical, Elemental, Almighty
Vengeance Bash: Physical
Eagle Eye: Physical
Star Drop: Physical, Elemental, Almighty (Applies to the damage amplifier)
Runic Gleam: Elemental, Almighty
Attack Tango: Physical
Atrophic Eye: Physical, Elemental
Circle Mastery: Almighty
Blood Surge: Physical, Elemental, Almighty
Charge: Physical
Charge Edge: Physical, Elemental, Almighty
Hawk Eye: Elemental
Drive Mastery: Physical, Elemental, Almighty
Charge Order: Physical, Elemental, Almighty
Triumph Song: Physical, Elemental, Almighty
Bravant: Physical

Passive Damage
Power Boost: Physical
Initiative: Physical, Elemental, Almighty
The Nightseeker's Proficiency/Expertise/Enlightenment: Physical, Elemental, Almighty
The Runemaster's Proficiency/Expertise/Enlightenment: Elemental, Almighty
Runic Guidance: Physical, Elemental, Almighty
Runic Flare: Elemental, Almighty
Defiance: Physical
Surge Mastery: Physical, Elemental, Almighty
Element Boost: Elemental, Almighty

Active Defense
Power Break: Physical
Mind Break: Elemental
Ally Shield: Physical, Elemental, Almighty
Line Shield: Physical, Elemental, Almighty
Party Shield: Physical, Elemental, Almighty
Weak Shield: Physical, Elemental, Almighty
Strike Guard: Physical
Element Guard: Elemental
Rampart: Physical, Elemental
Guard Tango: Physical
Charm Eye: Physical, Elemental
Rear Guard: Physical, Elemental, Almighty
Guard Order: Physical, Elemental, Almighty
Triumph Song: Physical, Elemental, Almighty
Stonard: Physical

Passive Defense
Iron Wall: Physical
Sword Breaker: Physical
Weapon Parry: Physical
The Runemaster's Proficiency/Expertise/Enlightenment: Elemental, Almighty
Surge Mastery: Physical, Elemental, Almighty

The following skills do not suffer from diminishing returns in any way:
Link Mastery
Blade Flurry
Follow Trace attacks which use Blade Flurry's damage multiplier

There are other instances where damage can be manipulated without the use of skills. These do not get affected by diminishing returns:

Using the Defend command (0.5 * Damage)
The TEC halving effect from Head Binds (0.5 * TEC. Hits every formula that TEC is used in.)
The damage halving effect from Arm Binds (0.5 * Damage)
Damage multiplier modifiers (Mists, Fire Rune, etc.)
Forges (Includes ATK, ELM, fire, ice, and volt forges)
Splash damage (From skills such as Fireball Rune. 0.5 * Damage)
Critical Hits (Includes the Sniper's Proficiency, Expertise, and Enlightenment skills. 1.5, 1.7, 1.85, or 2 * Damage)
Hitting targets not in melee range with melee STR-based damage (0.5 * Damage)
Hitting sleeping targets with a physical attack (1.5 * Damage)
Playing on Casual (Includes the 1.5 damage boost the players have, and the 0.5 damage multiplier that applies to enemy attacks)

Enemies are also affected by Diminishing Returns as well. However as enemies don't have access to offensive or defensive passives, they always get their buffs and debuffs reduced by 5%. Any player skills which amplify incoming damage are counted as Active Damage buffs for this purpose. These are listed below:

Vanguard: Physical
Assault Drive: Physical, Elemental, Almighty
Flame Drive: Physical, Elemental, Almighty
Freeze Drive: Physical, Elemental, Almighty
Shock Drive: Physical, Elemental, Almighty
Accel Drive: Physical, Elemental, Almighty
Overdrive: Physical, Elemental, Almighty