[rosser]

Because people are absolutely terrible at rationally evaluating risk. Consider people who are terrified of flying, but think nothing of texting while driving. That's (if slightly exaggerated) a pretty representative example of the general human calculus of risk.

The big, scary, but terrifically unlikely event factors more significantly into our fears than the prosaic, equally deadly, but vastly more likely one.

[LLWM]

In general, people correctly evaluate risk. The only situations that are completely modeled with a naive expected value are ones that are too simple to occur in real life. That's why things like the St Petersburg lottery are considered "paradoxes" but are easy to humans to understand using intuition.