The last line really helped me see where you are coming from: You take the expectation of the utility of the money, not the utility of the expectation of the money.
However, at http://lesswrong.com/lw/hl/lotteries_a_waste_of_hope/, you argue against playing the lotto because the utility of the expectation itself is very bad. Now granted, the expectation of the utility is also not great, but let's say the lotto offered enough of a jackpot (with the same long odds) to offer an appropriate expectation of utility. Wouldn't you still be arguing that it is a "hope sink", thus focusing on the utility of the expectation?
Hmmm.... I thought the point of your article at http://lesswrong.com/lw/mp/0_and_1_are_not_probabilities/ was that the difference between 1 and .99 was indeed much larger than, say, .48 and .49.
Anyway, what if we try this one on for size: let's say you are going to play a hand of Texas Hold 'em and you can choose one of the following three hands (none of them are suited): AK, JT, or 22. If we say that hand X > Y if hand X will win against hand Y more that 50% of the time, then AK > JT > 22 > AK > JT ..... etc. So in this case couldn't one choose rationally and yet still be a "money pump"?
Yes, but I think the point of his lottery article was that it was a bad deal for the individual player, and not just because it had a negative expected value; he was making the point that the actual existence of the (slim) possibility of riches was itself harmful. And he was not focusing on whether one actually won the lotto, he was focusing on the utility of actually having the chance of winning (as opposed to the utility of actually winning).