Summary: the problem with Pascal's Mugging arguments is that, intuitively, some probabilities are just too small to care about. There might be a principled reason for ignoring some probabilities, namely that they violate an implicit assumption behind expected utility theory. This suggests a possible approach for formally defining a "probability small enough to ignore", though there's still a bit of arbitrariness in it.
You were speaking about bounded utility functions. Not bounded probability functions.
The whole point of the Pascal's mugger scenario is that these scenarios aren't impossible. Solomonoff induction halves the probability of each hypothesis based on how many additional bits it takes to describe. This means the probability of different models decreases fairly rapidly. But not as rapidly as functions like 3^^^3 grow. So there are hypotheses that describe things that are 3^^^3 units large in much fewer than log(3^^^3) bits.
So the utility of hypotheses can grow much faster than their probability shrinks.
Well the probability isn't reasonable. It's just not as unreasonably small as 3^^^3 is big.
But yes you could bite the bullet and say that the expected utility is so big, it doesn't matter what the probability is, and pay the mugger.
The problem is, expected utility doesn't even converge. There is a hypothesis that paying the mugger saves 3^^^3 lives. And there's an even more unlikely hypothesis that not paying him will save 3^^^^3 lives. And an even more complicated hypothesis that he will really save 3^^^^^3 lives. Etc. The expected utility of every action grows to infinity, and never converges on any finite value. More and more unlikely hypotheses totally dominate the calculation.
See, I told everyone that people here say this.
Fake muggings with large numbers are more profitable to the mugger than fake muggings with small numbers because the fake mugging with the larger number is more likely to convince a naive rationalist. And the profitability depends on the size of the number, not the number of bits in the number. Which makes the likelihood of a large number being fake grow faster than the number of bits in the number.