Application and Prospect of Behavioral Economics in the Field of Power System Economic Decision Based on Prospect Theory

Economic decision-making of electric power system plays a vital role in the planning, operation and transaction of the electric power system. While the achievement of behavioral economics tells us that all the decision making process with human involvement is not that simple. Limited to human’s subjectivity on cognition and decision preference, the decision will become bounded rational. Sufficient knowledge on the behavior of power system economic decision can improve the accuracy and practicability of decision-making modeling, simulation and forecasting in power system, as well as improve the social elements in developing cyber-physical-social system of power system. Among different behavioral economic theories, prospect theory wins a wide range of research and application. Thus, prospect theory is first introduced here, and then the application of prospect theory is reviewed in the field of power system economic decisions. What follows is the analysis and discussion on key issues of the theory application and its possible further research prospects. Through literature review, it is found that economic decisions in power system based on behavioral economic theory are still pending problems noteworthy considering bounded rationality.