The problem with the original lottery is that most of its value is from high-EV tiny-probability events, e.g. the 2^{-50} probability of winning 2^50 dollars. The practical result of that event does not seem to be worth 2^50 utilons, to say the least. It is hard to think about events worth that many.
However, many perturbations of this lottery can actually be good bets.
For example, suppose you gain 3^n dollars with probability 2^{-n}. Then you have a 1/128 chance of winning $2187, a 1/256 change of winning $6561, and this game starts looking much nicer.
The "Pascal's Mugging" divergence is a different problem, where Solomonoff-style priors imply negative-exponential probabilities of Busy-Beaverish payoffs. Ordinary priors don't really have this problem.
However, many perturbations of this lottery can actually be good bets.
For example, suppose you gain 3^n dollars with probability 2^{-n}. Then you have a 1/128 chance of winning $2187, a 1/256 change of winning $6561, and this game starts looking much nicer.
The "Pascal's Mugging" divergence is a different problem, where Solomonoff-style priors imply negative-exponential probabilities of Busy-Beaverish payoffs. Ordinary priors don't really have this problem.