I think this is a highly inaccurate model, and not useful. By adding risk and reward to determine outcome value, Tao is claiming that outcome value is increased by riskiness. Similarly, high risk situations with low rewards have relatively no downsides (assuming there are no external shocks).

This is nonsensical.

When people talk about high risk situations, they tend to conflate two things: the magnitude of potential downsides and the likelihood of success. To make his model meaningful, Tao would need to incorporate that from the start.

I strongly recommend Fooled By Randomness as primer for thinking about this.

There exists some (often non-Gaussian) curve for describing risk vs reward. I don’t know how you simplify that… Maybe take for number, one for the average negative value outcome and one for the average positive value outcome, and their associated probabilities. And then just add those together? I’m not sure.