Accommodating bounded rationality in pricing demand response

Andrea Marin Radoszynski, Vladimir Dvorkin, Pierre Pinson

Research output: Chapter in Book/Report/Conference proceedingArticle in proceedingsResearchpeer-review


Demand response is considered an effective mechanism to deal with the intermittency and stochasticity of renewable sources in power systems. These mechanisms assume that participants behave as rational decision-makers. However, behavioural economists commonly agree that decision-makers are rather bounded rational and deviate from the optimal response. The purpose of this paper is to generalize the existing mechanisms to account for bounded rationality. This is done in the framework of the coupon incentive-based demand response program, by formulating a Stackelberg game between the load serving entity and the consumers. The game is recast as a bilevel optimization problem that can account or not for bounded rationality to study its effects on social welfare and revenue streams. Our analysis of a case study shows that bounded rational consumers lead to undesirable loss of revenue for the load serving entity that can be reduced by accounting for bounded rationality in pricing demand response.
Original languageEnglish
Title of host publicationProceedings of 2019 IEEE Milan PowerTech
Number of pages6
Publication date2019
Article number8810419
ISBN (Print)9781538647226
Publication statusPublished - 2019
Event2019 IEEE Milan PowerTech, PowerTech 2019 - Milan, Italy
Duration: 23 Jun 201927 Jun 2019


Conference2019 IEEE Milan PowerTech, PowerTech 2019
Series2019 Ieee Milan Powertech, Powertech 2019


  • Bounded rationality
  • Demand response
  • Game theory
  • Bilevel programming

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