Smart Grid Charging of Electric Vehicles: EV-Owner Response to Scheduling and Pricing under Myopic Loss Aversion in an Ultimatum Two-Player Game

Upward expectations of future electric vehicle (EV) growth pose the question about the future load on the electricity grid. While the literature on demand side management of EV charging has focused on technical aspects and considered EV-owners as utility maximizers, this study looks at the neglected psychological dynamics of EV-owners facing charging decisions and interacting with the supplier. This study represents these dynamics by proposing a behavioral framework of utility maximization under myopic loss aversion within an ultimatum two-player game framework. The EV-owner and the electricity supplier are the two players, the EV-owner faces three decisions (i.e., whether to postpone the charging to off-peak periods, which discount to request to the supplier for off-peak charging, which discount to accept for supplier-controlled charging), and there are two contract durations where the EV-owner decides daily (short-term) or weekly (long-term). The experimental analysis included six treatment conditions from the combinations of the three decisions with the two contract durations, and results showed that: (i) EV-owners perform charging choices not as pure utility maximizers, but are affected by myopic loss aversion resulting from monetary considerations as well as the ultimatum game with the supplier; (ii) EV-owners are open towards centralized smart-grid strategies optimizing the load on the grid from a system optimum perspective; (iii) the frequency of charging decisions (daily versus weekly contract) favors on the one hand utility maximization behavior of EV-owners and induces on the other hand myopia with a favorable cost minimization for the supplier.