Which of the following are consequences of diminishing sensitivity?

Question

BlackTom AI · Accepted Answer

Diminishing sensitivity means the marginal change in subjective value (or utility) becomes smaller as outcomes move farther from a reference point: small gains or losses matter more than equivalent-sized changes when they are large. This concept is central to prospect theory’s value function (concave for gains, convex for losses) and to non-linear probability and temporal weighting.

1. Relevant knowledge points and concepts
- Prospect theory’s value function: concave for gains (risk aversion), convex for losses (risk seeking) — both reflect diminishing sensitivity.
- Probability weighting: diminishing sensitivity implies overweighting of very small probabilities and underweighting of large ones, producing possibility and certainty effects.
- Temporal discounting: diminishing sensitivity over time (decreasing marginal sensitivity to delays) contributes to present bias — a strong preference for immediate rewards.

2. Step-by-step reasoning
- From concavity for gains: an extra $100 when you already have $1,000 yields less subjective gain than an extra $100 when you have $0 → diminishing sensitivity explains risk-averse choices for gains.
- From convexity for losses: losses show decreasing marginal disutility as losses grow, so people may gamble to avoid a sure loss → risk-seeking in losses.
- From probability weighting: because sensitivity to changes in probability diminishes as probability moves away from extremes, small probabilities get overweighted (possibility effect) and near-certain probabilities get underweighted (certainty effect).
- From temporal perception: if additional delay yields smaller incremental disutility the further one is from present, immediate outcomes are disproportionately favored (present bias).

3. Calculations
- No algebraic calculations are needed here; reasoning is qualitative based on the shapes of value and weighting functions.

4. Why the correct answer is correct
Each listed phenomenon (possibility/certainty effects, present bias, risk-seeking in losses) directly follows from diminishing sensitivity in either outcome valuation, probability weighting, or temporal weighting. Thus they are all consequences.

5. Why the other options are not correct alone
Each single-option choice names one consequence but omits the others. They are true consequences individually but incomplete as an exhaustive answer.

6. Conclusion
Therefore the correct choice is “All of the above,” which matches the provided answer.

Which of the following are consequences of diminishing sensitivity?单项选择题

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