Another weird thought for character creation. Rather than a menu to assign character points, you have a house in your dreams. You can use the exercise machines in the garage to boost your strength, or read books to increase your intelligence. Some books might grant particular skills.

You get a certain number of turns in the character development room, after which you have to "wake up" and begin the game. At the end of each day in the game, you might get some more turns in the dream world, to upgrade yourself further. Maybe there's some non-obvious things you can do; like make a cake in the kitchen to get a cooking skill. So character creation is like a puzzle in itself in some ways; certain skills might require dream items you have to collect, so it's harder to unlock them in the limited turns available. And maybe some skills (magic?) require keys gathered in the real world.

I realise it's just a character creation screen, character points, and a skill tree by a new name; with "turns" acting as character points. But do you think it's an interesting metaphor?

Brilliant!

I guess this also means that you're spending turns moving between different rooms… so putting all your points into one stat means you get more in total. That's kind of the opposite of the way a lot of systems work, making stats more expensive at higher levels. Maybe that's something that needs to be balanced out; maybe a "turn" of exercise increases your stats by less each time you do it or something. Or maybe that's a feature; it's more effective combat-wise to focus on one or two stats, but that leaves you with situations in the game where you'll have to find alternate paths around some problem. The most effective character is a glass cannon or similar, but they're harder to use effectively.

I'm also imagining a kind of "new game plus" mode; either allowing you to carry over dreamworld keys you've acquired, getting extra 'turns' based on %completion or some similar stat, or saying that doors unlocked in the dream house stay unlocked. Maybe there's some abilities you can't reach without multiple playthroughs. (This is what I was initially thinking of; I'm preparing a superhero book for release, thought about doing a game; but thought players might feel short-changed if it wasn't possible to have their favourite power, but it would be too much choice if they were all available initially. And the house of power-choice was born). Maybe if you're particularly silly and unlock everything through multiple playthroughs, there's even a monster within the house, that can grant you infinite stats if you can beat it before your turns run out.

A "game" to cover character creation was discussed, but not adding to the character stats later.
One way to make higher stats harder to get is...
If you use the DnD system where the stats are 3d6... which gives you 3 to 18 range.
Use a random chance that each time they exercise, that the stat will increase...
Like:
Str: 10
player uses weights.

Chance=1d20-(Str+2) or 12
so, a roll of over 12 will increase the str.
then later, when:
Str: 16
It will take a roll of 18 or better to increase it...

Option 2:
this will require a second variable to keep track of the little steps.
Str: 10
Str1: 5
each time the player exercises, str1 increases, then when str1=str then str1=0 and str=str+1
Longer and slower, but this will prevent someone from getting lucky or their rolls and upping their stats quickly...

Just sounds like RPG grinding, but with exercise equipment.

there's lots of equations/formulas/methods for doing "diminishing returns", and whether it's good or not to do it, depends on the game and/or what it's being used for within the game. Game Balance, along with mechanics, is an art, as well as requiring a lot of trial and error, practice/experience. There's so much involved with making a game, just coming up with a good mechanic is tough, let alone getting it to be in balance with the entire rest of the game and all of its other mechanics.

A mini-game for character creation and/or leveling up, is quite innovative, though I fear it might get boring quickly, if it's not done really well.

I can't see any reason to do the diminishing returns thing, other than "that's the way it's usually done". Maybe it's to make the player think the system is more complex, but I'd rather have a system that feels simple.

For example, if you add a "strength" stat onto your damage inflicted when fighting, there's already a law of diminishing returns. The difference between taking 8 hits to kill and enemy and taking 7 is a couple of points; but between taking 3 hits and 2 is a much smaller difference.
Where a particular stat is necessary to unlock an optional room or something, you could have the stat rise in a non-linear fashion; or you could create the same effect by adjusting the target numbers that correspond to "easy" or "hard" tasks. The latter method means that if the player knows the stat they need for a task, they also have a pretty good idea how long they'd have to grind for to get there without needing to do maths. Whether you want it to be simple depends on the tone of the game.

If I was going for slowing-returns, I think I'd rather not have anything like the systems DarkLizard suggests, because "You exercise but your stat doesn't change" isn't so much fun. I'd either go for "Exercising takes (1 + stat / 3) turns", which makes sense because a work out takes longer for a fitter person, or have a wider range of stats (maybe 1-1000) and start out gaining 15-20 points each time. Uhh ... stat = stat + GetRandomInt(1, 1800/(stat+50)) or something along those lines.

I like to think I'm pretty good at balancing numbers; though more for tabletop RPGs than these kind of games. A lot depends on the tone you want to create ^_^

same, I really don't like diminishing returns and/or exponential/logrithmic increases.... in grinding/etc... it's just too cruel to the person playing and isn't really good mechanics and balance.