What's the utility of winning or losing $50 when you only have $100?
One way to model it is that the marginal utility of money is propto your current wealth, so e.g. the utility is +0.5x (win) vs -0.5x (loss).
But is the marginal utility better measured relative to your pre-bet wealth or your post-bet wealth? Considering that your post-bet wealth is what you actually have to live with, I'd say the latter.
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In reality, what you should be measuring is the utility of *being in the state* where you've won or lost. The trick is to somehow estimate that based on the measured size of the bet and the experienced utility of being where you're at.
How does the brain do it? And where does it go wrong?
Nvm, it doesn't make sense to base anything on "the utility of being where you're at" or "your current stock of utility". Utility is a relative measure of choice-worthiness / preference between options.