the standard assumption of diminishing marginal utility of money is entirely sufficient
Not really. See this post. Still, the answer to that could be, and probably is, that people’s behavior in these matters is in fact unreasonable, and they should change it. I agree that the basic problem in the post here is that expected utility is equated with expected dollars. In utility theory a 10% chance of 10 times the utility is completely equal to 100% chance of the base utility. This is “by definition”, and if you prefer the 100% chance, you are saying that the other choice has less than 10 times the value.
Not really. See this post. Still, the answer to that could be, and probably is, that people’s behavior in these matters is in fact unreasonable, and they should change it. I agree that the basic problem in the post here is that expected utility is equated with expected dollars. In utility theory a 10% chance of 10 times the utility is completely equal to 100% chance of the base utility. This is “by definition”, and if you prefer the 100% chance, you are saying that the other choice has less than 10 times the value.