Fragility of the Commons under Prospect-Theoretic Risk Attitudes

We study a common-pool resource game where the resource experiences failure with a probability that grows with the aggregate investment in the resource. To capture decision making under such uncertainty, we model each player's risk preference according to the value function from prospect theory. We show the existence and uniqueness of a pure Nash equilibrium when the players have heterogeneous risk preferences and under certain assumptions on the rate of return and failure probability of the resource. Greater competition, vis-a-vis the number of players, increases the failure probability at the Nash equilibrium; we quantify this effect by obtaining bounds on the ratio of the failure probability at the Nash equilibrium to the failure probability under investment by a single user. We further show that heterogeneity in attitudes towards loss aversion leads to higher failure probability of the resource at the equilibrium.Comment: Accepted for publication in Games and Economic Behavior, 201

Cumulative Prospect Theory Based Dynamic Pricing for Shared Mobility on Demand Services

Cumulative Prospect Theory (CPT) is a modeling tool widely used in behavioral economics and cognitive psychology that captures subjective decision making of individuals under risk or uncertainty. In this paper, we propose a dynamic pricing strategy for Shared Mobility on Demand Services (SMoDSs) using a passenger behavioral model based on CPT. This dynamic pricing strategy together with dynamic routing via a constrained optimization algorithm that we have developed earlier, provide a complete solution customized for SMoDS of multi-passenger transportation. The basic principles of CPT and the derivation of the passenger behavioral model in the SMoDS context are described in detail. The implications of CPT on dynamic pricing of the SMoDS are delineated using computational experiments involving passenger preferences. These implications include interpretation of the classic fourfold pattern of risk attitudes, strong risk aversion over mixed prospects, and behavioral preferences of self reference. Overall, it is argued that the use of the CPT framework corresponds to a crucial building block in designing socio-technical systems by allowing quantification of subjective decision making under risk or uncertainty that is perceived to be otherwise qualitative.Comment: 17 pages, 6 figures, and has been accepted for publication at the 58th Annual Conference on Decision and Control, 201

Demand Response Management in Smart Grid Networks: a Two-Stage Game-Theoretic Learning-Based Approach

In this diploma thesis, the combined problem of power company selection and Demand Response Management in a Smart Grid Network consisting of multiple power companies and multiple customers is studied via adopting a distributed learning and game-theoretic technique. Each power company is characterized by its reputation and competitiveness. The customers who act as learning automata select the most appropriate power company to be served, in terms of price and electricity needs’ fulfillment, via a distributed learning based mechanism. Given customers\u27 power company selection, the Demand Response Management problem is formulated as a two-stage game theoretic optimization framework, where at the first stage the optimal customers\u27 electricity consumption is determined and at the second stage the optimal power companies’ pricing is calculated. The output of the Demand Response Management problem feeds the learning system in order to build knowledge and conclude to the optimal power company selection. A two-stage Power Company learning selection and Demand Response Management (PC-DRM) iterative algorithm is proposed in order to realize the distributed learning power company selection and the two-stage distributed Demand Response Management framework. The performance of the proposed approach is evaluated via modeling and simulation and its superiority against other state of the art approaches is illustrated