Upon use, attempts to generate a special Psionic Cluster, and if successful, all item pedestals in the room are absorbed by portals that teleport Isaac to the Psionic Cluster when entered.
The Psionic Cluster is always comprised of 3 rooms:
An entrance, usually with some pickups, and always containing a portal back to the Treasure Room.
A corridor, which may contain Psionic-themed enemies and occasionally some more pickups.
A Psionic Treasure Room, containing Hermit. Defeating Hermit will drop an item that is of a higher quality than the item Risk's Reward absorbed.
Notes
The item dropped by Hermit will never be an active item.
If more than 1 item was absorbed by Risk's Reward, it will only infer the quality of the item dropped by Hermit based on the highest quality item that was absorbed.
Charge Conditions
Risk's Reward becomes instantly charged under the following conditions, and instantly discharged the moment any of these conditions are violated:
Void / Metronome / ? Card: Mimicking the effect of Risk's Reward through another item will only succeed if Risk's Reward's charge conditions are met.
TMTRAINER: Hermit will appear to carry no item, but will still drop a glitched collectible when killed.
The Psionic Cluster sub-area appears to corrupt the visuals of TMTRAINER items, as they will now all have a section of the Psionic backdrop in their sprite.
Chaos: The item dropped by Hermit can be from a random item pool.
Damocles: Hermit will drop a second random collectible when defeated; this second item will not follow Risk's Reward's item selection rules.
Flip: Risk's Reward can work on either the normal item or the 'ghost' item. The item obtained from beating Hermit, however, cannot be flipped.
Abyss: Absorbing Risk's Reward spawns a unique-looking Psiling Abyss Locust. However, it is purely cosmetic and currently acts like a regular locust.
Devil's Crown: The Devil Deal item can be sucked up like normal — however, Hermit will still drop a Treasure Room item.
Red Key: If the psionic Cluster has already been generated, it is possible to create a corridor leading to it using Red Key.
Creating red rooms leading to every corner of the map, however, will prevent Risk's Reward from being able to generate the Psionic Cluster if it has not done so already.
Dim Bulb: With Risk's Reward's strict charge conditions leaving it uncharged for the majority of the run, Dim Bulb essentially grants an almost permanent all-stats up.
Video Showcase
Trivia
Risk's Reward was an unused item from the The Binding of Isaac: Afterbirth+ edition of Fiend Folio.
Despite this, Risk's Reward's effect utilizes mechanics introduced in The Binding of Isaac: Repentance, suggesting the item's effect had a different concept prior to the development of Fiend Folio: Reheated.
Risk's Reward was initially intended to be unlocked by defeating Satan as Fiend.
Treasure Room.
Hermit. Defeating Hermit will drop an item that is of a higher quality than the item Risk's Reward absorbed.
Bloody Crown / 
Holy Crown / 
Wicked Crown: Treasure rooms created in chapters 4 and 5 work as expected.
Void / 
Metronome / 
? Card: Mimicking the effect of Risk's Reward through another item will only succeed if Risk's Reward's charge conditions are met.
TMTRAINER: Hermit will appear to carry no item, but will still drop a glitched collectible when killed.
Chaos: The item dropped by Hermit can be from a random item pool.
Damocles: Hermit will drop a second random collectible when defeated; this second item will not follow Risk's Reward's item selection rules.
Flip: Risk's Reward can work on either the normal item or the 'ghost' item. The item obtained from beating Hermit, however, cannot be flipped.
Abyss: Absorbing Risk's Reward spawns a unique-looking Psiling Abyss Locust. However, it is purely cosmetic and currently acts like a regular locust.
Book of Virtues: Creates a regular wisp.
Devil's Crown: The Devil Deal item can be sucked up like normal — however, Hermit will still drop a Treasure Room item.
Red Key: If the psionic Cluster has already been generated, it is possible to create a corridor leading to it using Red Key.
Car Battery / 
Eternal Car Battery: No effect.
9 Volt: No effect.
Dim Bulb: With Risk's Reward's strict charge conditions leaving it uncharged for the majority of the run, Dim Bulb essentially grants an almost permanent all-stats up.
