The Basics (aka TL;DR, "I'll trust that math is a thing"):
- Dodge is multiplicative, not additive. This is not the same thing as having diminishing returns.
- Diminishing returns applies where each additional point confers a smaller benefit than the point before it. For example, Magic Find in Diablo 2 had diminishing returns - the more you added, the less each additional point was helping you.
- Dodge experiences the opposite of diminishing returns. Each additional 1% of dodge confers a larger benefit to the character than the point before it did.
- This doesn't mean that a maxed dodge character is better than a maxed armor or maxed resists character. Those other stats ALSO experience the same geometric growth in value (that is to say, they similarly DO NOT have diminishing returns). The highest average effective health is likely going to come from a balance of all three. But avoiding dodge because you think (erroneously) that it experiences diminishing returns is a mistake.
- Dodge is still probably worse than resists and armor, as those bonuses always apply, whereas dodge relies in part on chance. But, the highest average effective health will be achieved by balancing all three, along with DPS and vitality.
For those who want the math:
To understand this concept, you must understand the impact dodge has on your character's effective health. Effective health is how much damage an enemy must do to kill you. It is not the red health globe on the left of the screen, and it is not displayed anywhere in the game. To calculate this (considering only dodge), you multiply your health by 1/(1-d), where d is a number between 0 and 1 representing your dodge chance (ie 50% dodge is .5). Each piece of dodge equipment will do this separately (hence, the multiplicative part).
The simplest example is to imagine a character with 100 health, no other damage reduction, and two rings with 5% dodge each.
- Equipping ring one will do the following: Displayed dodge chance goes up from 0% to 5%, effective health goes from 100 to (100 * 1/(1-.05) = ) 105.263. You have gained 5.263 effective health from your first 5% of dodge.
- Equipping ring two will do the following: Displayed dodge chance goes up from 5% to 9.75%. This is where the logical error comes in - it is natural to assume that this second ring did less for you than the first one did, because the displayed number increased by only 4.75% (diminishing returns). This is incorrect. Your effective health goes from 105.263 to (100 * 1/(1-.0975) = ) 110.80. You have gained 5.53 effective health from your second ring, more than the 5.236 that the first ring gave you!
Conclusion: Dodge does not experience diminishing returns.
Dexterity DOES have diminishing returns:
DEX to dodge:
0 - 100 gives 0.1%
100 - 500 gives 0.025%
500 - 1000 gives 0.02%
1000 - 8000 gives 0.01%