Question: thanks! Mike has a utility function U(W)=In(w), and his initial wealth is $10,000. Mike faces the following probability distributions of losses with respect to his

thanks!

Mike has a utility function U(W)=In(w), and his initial wealth is $10,000. Mike faces the following probability distributions of losses with respect to his wealth: Probability Loss amount 80% 0 10% $1,000 10% $10,000 An insurance firm is willing to offer Mike the following two insurance policies. Which one should Mike choose, if he aims to maximize utility? Policy A fully covers all losses for a premium of $1,200; Policy B covers all losses with a deductible of $1,000 for a premium of $900. Policy A, because the expected utility under policy A is 9.08, which is higher than the utility under Policy B. Policy A, because the expected utility under policy A is 9.09, which is higher than the utility under Policy B. O Policy B, because the expected utility under policy B is 9.08, which is higher than the utility under Policy A. Policy A fully covers all losses for a premium of $1,200; Policy B covers all losses with a deductible of $1,000 for a premium of $900. Policy A, because the expected utility under policy A is 9.08, which is higher than the utility under Policy B. Policy A, because the expected utility under policy A is 9.09, which is higher than the utility under Policy B. Policy B, because the expected utility under policy B is 9.08, which is higher than the utility under Policy A. Policy B, because the expected utility under policy B is 9.09, which is higher than the utility under Policy A

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