Some interesting observations by Sabik, over at Boing Boing, about rationality and gambling:

… Under some circumstances it is in fact rational to gamble (and to get insurance …). The reason is that the utility of money is not linear.

As one gets more and more rich or further and further into debt, the difference made by an additional pound diminishes. It’s not a symmetrical, simple curve, but overall it’s roughly S-shaped.

Thus, it’s rational to gamble when one is in debt, for a jackpot of not much more than twice the size of the debt; in that case, the pounds won will have bigger marginal utility than the pounds bet.

Of course, one would prefer to play a game that has a good return — UK Lotto’s 50% is not really very good — but even then it may still be rational.

A similar argument would show that it’s rational to insure generally when one is not in debt; however, the curve is not symmetrical and in addition there are the non-monetary costs, so it’s probably rational in a wider range of circumstances.

– Sabik @ Boing Boing