If you're analyzing lotteries, one thing you have to think about is the diminishing utility of money. ( http://en.wikipedia.org/wiki/Diminishing_marginal_utility ). Your first dollar is a lot more useful than your millionth dollar. Or another way, having a million dollars is not a million times as useful as having one dollar - it's a lot less useful than that. This makes a lottery a pretty bad investment even when the expected-returns are in your favor.
Not to mention all those stories of people who win the lottery and then lose all their friends out of jealousy. But that's harder to analyze.
It seems to me that if you already have, say, 100000$, then that utility changes completely. Losing 1$ would be meaningless for you, whereas gaining 1 million dollars would be a huge improvement.
While having a million dollars isnt a million times as useful as having 1 dollar, it is monumentally more useful than having a million 1 dollar bills that cannot be combined. So i'd still rather have a million dollars in a lump sum than a million 1 dollar bills that i can only use one at a time.
Not to mention all those stories of people who win the lottery and then lose all their friends out of jealousy. But that's harder to analyze.