Everyone is well aware of downside risk. Downside risk is usually just referred to as “risk” and encompasses negative outcomes. Examples of negative outcomes include losing money, contracting a disease, getting injured, etc. It’s obvious why these sorts of situations would be considered negative and classified as risks, and because of this, they get the attention they deserve.
Unfortunately, there are also risks associated with the positive outcomes as well. The simplest example is winning the lottery. If losing money is bad, then winning a gargantuan sum of money is great, right? Nope. I won’t go into detail here, but a large percentage of lottery winners end up having people hounding them, fall out with their family, start doing drugs, pick up a gambling addiction, or any have any number of other unfortunate things happen to them. Generally, the more money you win, the worse the outcome. Here’s a great write-up on the subject.
This goes with many other “positive” outcomes, like becoming famous, gaining a large amount of power, etc. It’s easy to see the negative outcomes of fame — paparazzi, drug addictions, gold diggers, etc. What about power, then? Sure, people with power tend to have sex with children and have people killed, but that’s a negative for other people, right? The more power you have, the more latitude you have to do whatever you want.
Now you can argue that sex, money and power aren’t things that you want. My claim here is that no matter what you want, there is always a risk associated with getting what you want, especially if you get it too easily. There is upside risk, but that also doesn’t mean that you shouldn’t go after what you want. You should just be aware that there are risks in that direction as well, and that there are no free rides into the sunset.
But why, though? Why isn’t life happily ever after if you win the lottery or marry the girl of your dreams or became a famous A-list actress? I’ll start this out with a quote from the Reddit post I linked to above:
Believe it or not, your biggest enemy if you suddenly become possessed of large sums of money is… you.
And another quote from Khabib Nurmagomedov, arguably one of the greatest UFC fighters of all time:
Money and fame show who you are. All the time we hear that money and fame change, people. No. When money and fame come, these two things show who you are.
“Absolute power corrupts absolutely” is a saying that people like to throw around, usually in the context of political or corporate corruption and degeneracy. It sounds nice so it’s easy to accept as true, but there are counter-examples to this fact. Rome’s five good emperors (Nerva, Trajan, Hadrian, Antonius Pius, Marcus Aurelius) had nearly absolute power but were not corrupted to the extent that would be expected if this quote was true. One counterexample might be a fluke, but when you have five (and five in a row) it might be time to retire the quote.
So if absolute power doesn’t necessarily corrupt absolutely, what’s the relationship between power and corruption? On a macro-scale, they are certainly positively correlated — the more powerful the class of people, the more corruption they are likely participating in. A large part of this is due to the fact that more powerful people have more opportunities and a greater ability to be corrupt, so it follows that the more powerful classes participate in more corruption, all else held equal.
There is another factor that we need to take into consideration here, and that’s character. When I said all else held equal, I mainly was referring to the character of the people in the different classes. If there is the same distribution of character across all classes, it stands to reason that those with more opportunities and greater abilities to be corrupt will naturally participate in more corrupt activities. But that’s only if the character distribution is the same across power classes.
Ideally, the people with the best characters should have positions of higher power, and the better the character of a person, the greater the position of power they should occupy. Hypothetically, a ruler with with perfect character and unlimited power should be able to guide a nation with no issues, but nobody has perfect character, which is why the world has generally shifted away from monarchies to systems with more checks and balances. These checks and balances serve to limit the power of any one position and limit the damage that someone with poor character can do.
Now I want to zoom in on the individual and explore the relationship between power and character. We’ve already established that power inherently corrupt people, as evidenced by the examples of people with near-absolute power who were not corrupt. Instead, it gives people a greater ability and more opportunities to participate in corrupt behavior, but in the end, it is up to the person whether they will take these opportunities. There are two inhibitory factors at play — the limitations imposed by one’s lack of power and one’s character. If someone has poor character but no power, they cannot participate in much corruption because their circumstances do not allow them. But if this person suddenly gains power, they will likely take advantage of the opportunities given to them, and you know the rest. A person with good character and no power cannot and will not participate in corrupt activities. If they are given power, they will likely continue abstaining even though their circumstances now allow them to participate in corrupt activities.
What do I mean by “good character” and “bad character”? In this context, it simply refers to one’s desire and ability to abstain from corrupt activities (good character) or lack thereof (bad character). Whatever the core driver of behavior is doesn’t matter (religion, strong sense of right and wrong, etc) when we are looking at character as a functional trait. Actions and behaviors are all that matter.
I used power as example previously, but this holds true for anything else that people want, like money and sex. Going back to the question I posed earlier: Why isn’t life happily ever after if you win the lottery or marry the girl of your dreams or became a famous A-list actress? Because most likely, you don’t have the character to handle the opportunities and choices that will be coming your way. Let’s be clear, you might, and in that case you’ll fine.
Upside risk is risk that comes with a sudden introduction of opportunities and choices that follow the achievement of a desire (hence the “upside” component). Before, you were bound by certain situational constraints — more accurately, relied on certain situational constraints — in order to keep your behavior in check. For example, if you’re poor, your financial situation prevents you from bribing officials or flying to Epstein’s island or buying tons of property in the Bahamas. But once you have money and your financial constraints evaporate, you’re suddenly able to do all of these things. The only question becomes whether you will decide to or not, and this boils down to a matter of personal preference or personal standards. If you’re the type of person who would enjoy doing coke and no standards against doing coke, chances are that you will develop a coke habit.
A slow, steady progression is the best way to train yourself to deal with the opportunities and choices that will be coming your way. Many times, however, things happen quickly. One day you’re poor and the next you’re rich; one day you’re powerless and the next you have power; one day you’re a nobody and the next you’re famous. At that point, the only thing that will help you is the degree to which you’ve developed your character and the degree to which you understand yourself and have planned for this upside outcome. If you know you’re the type of person who enjoys doing coke and you know you don’t have the discipline to refuse coke from friends or strangers, you’d be wise to move out of Miami once you make your money.
I wrote all of this to say that upside risk is a real thing and in order to capture as much upside as possible, you need to have developed the character and have planned ahead so that when the time comes you don’t fall into the traps that come with money, sex, power, or any other things you want.