> The assumption is that your utility curve in the lossy region is sublinear
Which makes lottery tickets all the more a bad idea. Not only is the expected return in dollars less than your investment, but thanks to the diminishing marginal utility of money your ten millionth dollar will be worth less than your ten thousandth. Lottery tickets are actually worse than their already crappy EV.
Well, some people hypothesize that your utility can be superlinear in the positive region. Utility = (gain or loss)^3, for example.
Of course, the stats prof says he buys lottery tickets because they are fun. I do something similar - even though the expected gain from video games is precisely $0, I still play them.
Which makes lottery tickets all the more a bad idea. Not only is the expected return in dollars less than your investment, but thanks to the diminishing marginal utility of money your ten millionth dollar will be worth less than your ten thousandth. Lottery tickets are actually worse than their already crappy EV.