Name for a problem where one solution has a high known cost and the other has an unknown cost

Question

There's this type of problem I occasionally encounter in many different parts of my life. In this problem, there are two strategies to success:

1. High, known cost
2. Unknown cost, potentially very low or very high

The interesting thing about this problem is that with strategy 2, you might continuously feel like success is just around the corner. Each time you weigh your options, #2 might seem like the better option but in the end you can waste a lot of time.

Here are some examples:

• You need to make money. You can work hard at a steady job or gamble (one might consider making a start-up like gambling).
• You just got a new appliance and you need to set it up. You can read the manual or you can try random keys and working through the menus using intuition.
• You're trying to find something in your house with little to no idea where it is. You could systematically go through every area of every room, or you could semi-randomly look in the most likely areas.
• You're stuck in traffic. Nobody is moving at all. The road's shut down but you don't know for how long. You could take a much longer alternate route, or you could wait for the road to reopen.

Is there a word for that? This must be some kind of b-school/game theory thing.

Answer 1

Dave, there is no single-word for what you describe.

However the exact phrase associated with this situation in English is "better the devil you know, than the devil you don't." or "the devil you know versus the devil you don't" or "it's the devil you know or the devil you don't" and other variations.

(So, just as you say, it's a very-bad-known-situation, and there's a alternative which unfortunately is unknown.)

Raider has provided certain relevant phrases ("Loss Aversion", the "Gambler's Fallacy") which may be useful (if you read up on them) in discussing the issue at hand. (When you mention "game theory", in general you may be thinking of "Prisoner's Dilemma", which you could read up on.)

But there's no such single word for when you are in a "it's the devil you know, or the devil you don't" situation.

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Note Greg has importantly reminded us that another variation on this is "Caught between the devil and the deep blue sea" - outstanding, Greg.

Answer 2

Your initial question is very clear once you add:

The interesting thing about this problem is that with strategy 2, you might continuously feel like success is just around the corner.

This is known as the Gambler's Fallacy. People depend to it when saying a series of good or bad events is due to end, because "the law of averages", as if nature is keeping track and will balance itself out here soon.

However, your different examples are a mixture of other ideas. And for the most part, you're circling around the idea of predicting Return on Investment. Basically, for most of these ideas, you're saying there's a known cost and reward of doing one action, but unknown cost or reward for the other.

The tendency of humans is to engage in Loss Aversion. This concept is fairly obvious: we prefer to not lose something rather than gain something. This tendency is very strong, and I don't have any sources on hand, but I seem to recall that it's been empirically shown that for moderate risk situations, the average person requires a doubling or tripling potential for reward to engage in the risk, even though the math says that's completely unnecessary.