Why is the Marginal Utility of losses deminishing in Prospect Theory?
The value function used in Kahneman's prospect theory (which your plot shows) is supposed to capture empirically observed behavior of people's attitudes towards gains/losses as well as to risks in those domains.

In the domain for gains, people are usually risk averse. However, in the domain for losses, people do tend to take larger risks. A nice illustration is the observation that when a gambler is losing money (relative to the amount he came to the casino with), he tends to wager on higher stakes (larger risks), perhaps in an attempt to "win back" the losses. 

So the convex curvature in the domain of losses is meant to capture this type of behavior. 



In fact, prospect theory's treatment of people's risk attitude is even more nuanced than the above. In addition to the S-shaped value function you showed, it also has a component that allows for non-linear probability weighting. Together, the value function and non-linear probability weighting generate the following four-fold classification of risk attitudes: 
\begin{array}{c|cc}
&amp;\text{gains}&amp;\text{losses}\\\hline
\text{low probability}&amp;\text{risk loving}&amp;\text{risk averse}\\
\text{high probability}&amp;\text{risk averse}&amp;\text{risk loving}
\end{array}

See Kahneman and Tversky (1992) for more detail.