While one can fold this type of difficulty into expected utility theory, this is not (apparently) true of all situations. People still overweight loss, overweight certainty, and overweight extremely low probabilities.
The classic paper by Daniel Kahneman and Amos Tversky presents a pretty thorough critique of expected utility theory as a model for decision making, as an empirical question. c.f.
www.hss.caltech.edu/~camerer/Ec101/ProspectTheory.pdf
The classic paper by Daniel Kahneman and Amos Tversky presents a pretty thorough critique of expected utility theory as a model for decision making, as an empirical question. c.f. www.hss.caltech.edu/~camerer/Ec101/ProspectTheory.pdf