Fractional Prospect Theory-Based Bidding Strategy of Power Retail Company in the Uniform Pricing Electricity Market under Price Uncertainty

Abstract

This paper first proposes a fractional prospect theory-based method for modeling the bidding strategy of a power retail company in the uniform pricing electricity market under price uncertainty. Different from the traditional methods which assume that the retail company always bids completely rationally to maximize its individual payoffs, this paper introduces the prospect theory (PT) into the bidding model to reflect the impacts of psychological factors and subjective perceptions. To address the partial uncertainties brought by the continuous probability distribution in the value function, this paper modifies the classical PT into the fractional prospect theory (FPT) and builds up the FPT-based bidding strategy model under 1-segment and 3-segment bidding rules. The simulation results show that the proposed method can effectively model the psychological factors in the bidding strategy of a power retail company in the uniform pricing electricity market under price uncertainty, which can help to further study the competition and equilibrium of the uniform pricing market considering the psychological factors of the participants.