We are inclined to use expected return when we should use expected utility

A well-known point that goes back to Bernoulli and the very dawn of the expected utility formalism - except that conventionally this is illustrated by explaining why you should not buy lottery tickets that seem to have a positive expected return.

Your main post is rather an attempt to defend behavior as "rational" which on the surface appears to be "irrational". This may make sense when you're looking at a hedge-fund trader who seemingly lost huge amounts of money through "stupid" Black Swan trades, and yet who is, in fact, living comfortably in a mansion based on prior payouts. The fact that he's living in a mansion gives us good reason to suspect that his actions are not so "stupid" as they seemed.

The case for suspecting the hidden rationality of crack users is not so clear-cut. Is it really the case that before ever taking that first hit, the original potential drug user, looking over their entire futures with a clear eye free of such biases as the Peak-End Rule, would still choose the crack-user future?

People in general are crazy. We are, for example, hyperbolic discounters. Sometimes the different behavior of "unusual" people stems not from any added stupidity, but from added motives given their situation. Crack users are not mutants. Their baseline level of happiness is lower, they are more desperate for change, their life expectancy is short; none of this is stupidity per se. But like all humans they are still hyperbolic discounters who will value short-term pleasure over the long-term consequences to their future self. To suppose that being in poverty they must also stop being hyperbolic discounters, so that their final decision is inhumanly flawless and we can praise their hidden rationality, is a failure mode that we might call Pretending To Be An Economist.

Don't blame the readers, you killed your own post: humans in general are flawed beings, and buying lottery tickets is an illustration thereof. Trying to make it come out as an amazing counterintuitive demonstration of rationality was your mistake. To illustrate the difference between expected return and expected utility, you should have picked some example whose final answer added up to normality (like "Don't play the Martingale") rather than abnormality ("Buy lottery tickets now!").