Mike has a utility function expressed by U(W)= W^0.5, where W stands for wealth (assuming wealth is positive, i.e. W>0), and U(W) is the utility given a certain level of W. Mike has initial wealth of $10,000. Mike feels that he faces the following probability distributions of losses with respect to his wealth:

Loss Amount ($) Probability

$0 70%

$1,000 20%

$8,000 10%

If Mike's utility function is changed to U(W)=W^0.2, the maximum premium he is willing to pay will be ___. If the function is changed to U(W)=5W, the maximum premium he is willing to pay will be ___.

Question 19 options:

	Higher; lower
	Higher; the same
	Lower; higher
	Lower; the same