Market design and human trading behavior in electricity markets

This paper is based on a series of controlled experiments in the trading of wholesale electricity that expands substantially the scope of experimental research programs reported previously. The experiments employed cash motivated students and rented computer laboratory facilities of the University of Arizona. The primary objective of these experiments was to compare two alternative institutional arrangements for the trading of electric power. As in the California markets the first employed day-ahead sealed bid trading of energy for all periods in the subsequent day; the second employed simultaneous continuous double auctions for bilateral trading of energy up to the hour before delivery. In each the energy market was supplemented by a reserve market and an hour-ahead adjustment market for real-time pricing. All trading was executed on a nine-node network with limited transmission capacity. Eight nodes were control areas, with one large wholesale generator company and one large distribution company resident there.