[MCS]

[ QUOTE ]
The lottery is +utilityEV because of marginal utility. It's -$EV though.

[/ QUOTE ]

No, the lottery is NEGATIVE EUtility because of marginal utility, at least if we don't consider the value of "hope." You've kind of waved your hands through your argument that "having one less dollar will affect your quality of life by approx. zero. Winning the lottery would have a huge +utility effect." Well, how close to zero? And how huge, exactly? These things matter a lot considering that the chance of winning the lottery is incredibly small as well. I could say, "Your chance of winning is about zero, so you're just gonna lose money for sure."

Money has nonincreasing marginal utility for essentially everyone. Therefore, a 1 in N chance of winning $N (with no other prizes possible) has a $EV of 0, but is -EUtility for large N since (1/N) * (U($N)) < U($1). Many people are essentially risk-neutral for sufficiently small N; for example, we may have EU=0 if N=2.

It can still be a rational decision to play the lottery because the utility of fantasy is significant compared to the EU loss from the purely financial aspect.