  Demand-side management (DSM) has emerged as an important smart grid feature
that allows utility companies to maintain desirable grid loads. However, the
success of DSM is contingent on active customer participation. Indeed, most
existing DSM studies are based on game-theoretic models that assume customers
will act rationally and will voluntarily participate in DSM. In contrast, in
this paper, the impact of customers' subjective behavior on each other's DSM
decisions is explicitly accounted for. In particular, a noncooperative game is
formulated between grid customers in which each customer can decide on whether
to participate in DSM or not. In this game, customers seek to minimize a cost
function that reflects their total payment for electricity. Unlike classical
game-theoretic DSM studies which assume that customers are rational in their
decision-making, a novel approach is proposed, based on the framework of
prospect theory (PT), to explicitly incorporate the impact of customer behavior
on DSM decisions. To solve the proposed game under both conventional game
theory and PT, a new algorithm based on fictitious player is proposed using
which the game will reach an epsilon-mixed Nash equilibrium. Simulation results
assess the impact of customer behavior on demand-side management. In
particular, the overall participation level and grid load can depend
significantly on the rationality level of the players and their risk aversion
tendency.
