Swiss scientist Daniel Bernoulli understood that the Utility function has a logarithmic relationship with the Wealth function. Bernoulli therefore recognized the relative value of utility, which decreases as the wealth at stake increases. He also recognized risk aversion, meaning we are willing to pay more than we (statistically) should for certain utility. Two centuries later, with von Neumann and Mongenstern and then with Daniel Kahneman and Amos Tversky, it would be proven that we also have the hope of large gains, for which we are willing to pay more than we should. Insurance and pension systems profit from the first flaw (of System 2 according to Kahneman and Tversky’s nomenclature), while lotteries profit from the second.
