Towards a Consumer-Centric Grid: A Behavioral Perspective

TL;DR

This paper investigates how prospect theory can explain consumer decision-making in smart grids, highlighting the importance of understanding human behavior to enhance adoption and optimize smart grid operations.

Contribution

It introduces prospect theory as a framework to analyze consumer choices in smart grids, emphasizing behavioral insights for better deployment strategies.

Findings

Prospect theory helps explain consumer risk behavior in smart grid decisions.

Understanding human decision-making can improve smart grid technology adoption.

Behavioral insights are crucial for optimizing smart grid operations.

Abstract

Active consumer participation is seen as an integral part of the emerging smart grid. Examples include demand-side management programs, incorporation of consumer-owned energy storage or renewable energy units, and active energy trading. However, despite the foreseen technological benefits of such consumer-centric grid features, to date, their widespread adoption in practice remains modest. To shed light on this challenge, this paper explores the potential of prospect theory, a Nobel-prize winning theory, as a decision-making framework that can help understand how risk and uncertainty can impact the decisions of smart grid consumers. After introducing the basic notions of prospect theory, several examples drawn from a number of smart grid applications are developed. These results show that a better understanding of the role of human decision-making within the smart grid is paramount for optimizing its operation and expediting the deployment of its various technologies.