Research On Power Supplier's Trading Decision-Making Based On Bounded Rationality

In electricity market, how the generation suppliers should construct their trading strategies is the subject concerned commonly by both generation suppliers and regulators. Currently, most of the existing methods for solving the trading decision-making problem apply the risk decision-making models in traditional economics. In these models, one of basic hypotheses is that the decision-makers are the economic men with the complete rationality. However, in reality, generation suppliers are persons only with the bounded rationality. Thereby, a relative systemic research is made based on the hypothesis that the generation suppliers are persons with the bounded rationality in this paper. The mainly works and results are presented as follows:Firstly, two primary decision characteristics which could be exhibited with large possibility when generation suppliers making trading decisions are analyzed: one is "Mental Accounting", another is "Loss Aversion". Because the two decision characteristics imply that the generation suppliers have changeable risk preferences, they can not be explained and formulated by traditional risk decision-making methods.Secondly, in order to formulate the influence of expected goals on trading decision in single mental account, a safety-first risk decision-making model is developed for generation suppliers. In the model, two expected profit goals needed for survival and for normal profits are considered simultaneously, but the achievement of the survival goal is top-priority for it reflects the safety of decision-making. Numerical simulation shows, the results of the proposed model are more accordant with the realistic psychology of generation suppliers compared with traditional expected utility model.Thirdly, since the risk decision-making models based on single mental account can not formulate the well-know step-wise discriminatory bidding strategies of generation suppliers in a pay-as-bid auction, the paper develops a risk decision-making model based on multiple mental accounts. In the model, the total generation capacity is split into several independent parts based on the different purposes, and these parts are allocated into different independent mental accounts with different risk tolerance and different profit goal respectively. Numerical simulation results show the satisfied step-wise biding curves can be constructed for generation suppliers by the proposed model.Lastly, for the bidding decision-making problem under a uniform price electricity auction market without unilateral market power, a simple heuristic bidding strategy aiming at forming a tacit collusion is proposed based on the concept of "Mental Accounting". Based on this bidding strategy, the price spikes under the sufficient supply can be explained reasonedly, and meanwhile, analyses also show that the price spikes can not be eliminated under the uniform MCP pricing. Further analyses shows, if the combination of the largest two generation suppliers has the unilateral market power, there could be a relatively stable tacit collusion in the market. Furthermore, the more supra-marginal capacity these two generation suppliers have, the stabler the tacit collusion will be.The research of the paper shows that the generation suppliers usually exhibit some decision characteristics deviating from complete rationality when making the risk trading decisions. So, to develop a risk trading decision-making model being consistent with the practical trading behaviors and psychological requirements of generation suppliers, the bounded rationality of generation suppliers must be considered. Meanwhile, knowing well these decision characteristics, some market phenomena which can never be understood by traditional rational analyses, can be explained reasonedly.