Hello, everyone, welcome back again. In the last lecture, we looked at one example of relative utility function that defines preferences being depending on their environment or relative to what is used to, right? Namely the habit utility. So, another example of a relative utility function is what we call keeping up with the Joneses utility function. So what's keeping up with the Joneses preferences about? Well, Keeping up with the Joneses utility function defines utility relative to your peers, right? So for example, it's not your performance in absolute terms that matters, it is how you perform compared to your peers, right? So, your level of utility depends not just on your own returns but also on how your peers do, relative to you, right? So, your utility level is going to be high when you outperform or you consume more than your peers, right? And at the same time your utility level can be high when you are poor, as long as everybody else is poorer than you, all right? Catching up with the Joneses is a pretty realistic utility function for individuals who don't want to feel left behind, right? Or left out of, for example, the next hottest investment tip, all right? Another interpretation of having your utility dependent on wealth or consumption of others, is that this type of utility function reflects status, right? Status is really important. So, in asset management, status is typically associated with better performance, greater wealth or consumption than one's peers, right? It's like having that, the newest sports car, for example. So, this type of preferences might be especially relevant for portfolio managers, all right? Who are explicitly benchmarked against theirs peers, against each other, right? Now, one of the consequences of this kind of behavior is that it might lead to hurting, right? They will all want to hold the same stocks, right? For example, if one set of investors takes a position in certain stocks, whether for rational or irrational reasons, others will follow not to fall behind, right? And in fact, herding can come about indigenously even if there is no explicit benchmarking. Why? Well because with keeping up with the Joneses utility, the risk of deviating from everybody else just feels too painful, right, it's too large, right? Okay so, keeping up with the Joneses utility is a very important type of utility function, that can have very biting implications