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Behavioural simulations in spot electricity markets

Banal-Estanol, A. & Rupérez Micola, A. (2011). Behavioural simulations in spot electricity markets. European Journal of Operational Research, 214(1), pp. 147-159. doi: 10.1016/j.ejor.2011.03.041


We study the consistency of behavioural simulation methods used to model the operations of wholesale electricity markets. We include different supply and demand representations and propose the Experience-Weighted Attractions method (Camerer and Ho, 1999) to encompass several behavioural paradigms. We compare the results across assumptions and to standard economic theory predictions. The match is good under flat and upward-slopping supply bidding, and also for plausible demand elasticity assumptions. Learning is influenced by the number of bids per plant and the initial conditions. The simulations perform best under reinforcement learning, less well under best-response and especially poorly under fictitious play. The overall conclusion is that simulation assumptions are far from innocuous. We link their performance to underlying features, and identify those that are better suited to model liberalised electricity markets.

Publication Type: Article
Additional Information: NOTICE: this is the author’s version of a work that was accepted for publication in European Journal of Operational Research. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in European Journal of Operational Research, Vol 214 ISSUE 1 (1/10/2011) 10.1016/j.ejor.2011.03.041
Publisher Keywords: Behavioural simulations, Electricity auctions, Experience-weighted attraction (EWA), Learning from metadata, Market design
Subjects: H Social Sciences > HB Economic Theory
Departments: School of Policy & Global Affairs > Economics
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