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.
@article{arxiv.1511.01065,
title = {Towards a Consumer-Centric Grid: A Behavioral Perspective},
author = {Walid Saad and Arnold Glass and Narayan Mandayam and H. Vincent Poor},
journal= {arXiv preprint arXiv:1511.01065},
year = {2015}
}