Suppose that one is faced with the opportunity to risk $1000, with a 50% probability of doubling one's money and 50% probability of losing the initial stake. Mathematically, the odds of winning vs. losing are perfectly balanced in this instance. Note, however, that by the law of diminishing marginal utility, the potential winnings have lower subjective utility than the potential loss. The $1000 that one would might attain, if it were added to the initial $1000, would be marginally less valuable than the initial $1000 that one risks losing. In other words, where the odds are perfectly balanced and no special psychic factors are present, the marginal-utility principle tells us that gambling carries with it a certain inherent disutility.

The law of diminishing marginal utility, it should be remembered, is not just a theoretical abstraction. It simply reflects the practical fact that goods must be allocated to ends of higher priority when those goods are less abundant. In the gamble just examined, for example, the $1000 that might be lost would have fulfilled more urgent ends than the $1000 that might be gained. Thus the value attached to security is not just an irrational compulsion (as in the aforementioned traumatized survivors of the Depression era), but also a consequence of the rational behavior of individuals, who seek to avoid the tough choices imposed by increased scarcity.