Taking on higher risk for an increased potential marginal reward isn't always a good idea to execute on, but I believe the lack of common sense in our pursuit of greed has no problem bypassing through our rational mind.
Risk management is commonly understood as limiting potential downside volatility.
Lose weight to gain health, the concept of subtraction in most domains of life is not looked nicely upon, except in matters of health and wellness. Some are genuinely putting in the effort to subtract years from their biological age.
Another aspect of risk management, which often gets overlooked, is avoiding ruin altogether. Survival matters more than optimization.
In the traditional corporate or investment view, risk is managed by dampening variance, making outcomes more predictable.
But often, in the pursuit of "smoothness", whatever it is that one is trying to protect gets exposed to a "silent risk", defined as the risk of stagnation or a sudden, catastrophic blow-up.
Nassim Taleb more or less probably frame it better as capped downside and the other side of the position being near unlimited upside.
Basically, it's the concept of convexity and you want to position yourself where you are immune to the crash, but open to the moonshot. So that when you are wrong, you lose a little (a failed low-cost experiment), but when you are right, the payoff is non-linear and massive. My guess is there's more art to this than science with "baking in" luck.
Also, my mind tries really hard to come up with truly unlimited upside scenarios in matters of creative leverage and digital equity.
I don't doubt that they do exist where a single piece of code or writing can disconnect inputs from outputs entirely. But they're far and in between as they say. An anomaly of sorts.
Yet another angle that I personally try to balance with regards to risk management is the elimination of opportunity. Tinkering on one side of the risk-reward equation affects the other side.
One can inadvertently seal off the surface area where luck usually strikes if the downside of an awkward encounter or a failed passion project is strictly limited to a pre-defined parameter. Of course, this works mostly in domains where linear thinking dominates.
I guess I'm venturing a bit too out into viewing risk management as a totality of multiple competing priorities.
In markets and careers, people sometimes default towards risky things mostly because everyone else is doing them (FOMO), overriding our logic.
In personal life, we can avoid "good risks" because our biological drive for safety overrides our logical desire for growth.
The idea of non-linear returns is basically wanting a payoff curve that looks like a smile, not a frown.
In physics, nothing is unlimited. Come towards economics and sociology and you figure outhowever, things like "Scalability" and "Love" approach it.
Code and media are the only things that have zero marginal cost of reproduction, allowing for near-infinite returns on a single unit of work (Naval Ravikant influences this thought process, so just borrowing words here).
On another thought, a relationship can be perceived to have no "cap", in that the joy or utility derived from a lifelong partnership or friendship cannot be quantified and can compound indefinitely.
Thanks for reading!! Share your thoughts below on the comments.
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