This picture summarizes prospect theory by Daniel Kahneman.
Looking at the gains part: The slope of the graph is getting smaller. I can understand this: If I own a million, then adding 100 euro's isn't as impactful as when I own only 1 euro.
My question is about the losses part: Here also the slope of the graph is getting smaller away from the reference point. This implies that if someone would either lose 100 euro or have a 50% chance of losing 200 euro, he would go for the gamble and become risk seeking.
But to me this doesn't make intuitive sense for two reasons:
If I am loss-averse, which I am, then why would I take a gamble with my second 100 euro's? I would look at it as if I already lost 100 euros and then I can take the gamble of 50% of winning 100 euro or 50% losing another 100 euro. Since I am loss-averse I would not take the bet.
Let's say I only own 200 euro in total: in that case I would definately want to hold on to my last 100 euro, since then I can at least pay for the rent. In other words, the utility of my last 100 euro is way bigger than the utility of my second-last 100 euro. But this is not represented in the slope.
Can anyone explain to me why according to Kahneman the slope of the losses-part diminishes away from the reference point?