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linas comments on Is risk aversion really irrational ? - Less Wrong
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That is one point I noticed at the first scenario as well. If there is only B1, Clippy will accept it. But if Clippy knows about both bets before deciding, he will reject B1 and take B2, for an expected utility of 4.19 instead of (2+5.57)/2 = 3.78.
When offered B1, Clippy might try to predict future bets and include that in the utility calculations. I expect (but do not have anything except intuition), that a bit of risk-aversion (for B1 only) is a good strategy for a large range of "expected bet probability density functions".
Gamblers need some superlinear utility function for money (which is unlikely), have to assign a positive utility for the gained time where they don't know whether they will win (which is likely) or just act irrational (which is nearly certain).
There needs to be an exploration of addiction and rationality. Gamblers are addicted; we know some of the brain mechanisms of addiction -- some neurotransmitter A is released in brain region B, Causing C to deplete, causing a dependency on the reward that A provides. This particular neuro-chemical circuit derives great utility from the addiction, thus driving the behaviour. By this argument, perhaps one might argue that addicts are "rational", because they derive a great utility from their addiction. But is this argument faulty?
A mechanistic explanation of addiction says the addict has no control, no free will, no ability to break the cycle. But is it fair to say that a "machine has a utility function"? Or do you need to have free before you can discuss choice?