Study on bidding strategies of Gencos based on cumulative prospect theory and Bayesian learning model

Abstract

Because generators are limited rationality and their bidding strategies exist risk and uncertainty, this paper proposes a generators' bidding model which is constructed by value function and weight function based on cumulative prospect theory. Value function shows the changes of losses and gains, and weight function reflects players' psychological risk factors. The prospect value of bidding strategy is decided by value function and weight function, and the optimal bidding strategy is the biggest one among these prospect values. Finally, an example is employed, and the numerical results tell us that this method is feasible.