Traditional finance relies on the principles of modern portfolio theory, such as the efficient market hypothesis, assuming that all investors are rational and all available information will be interpreted correctly by investors, banking institutions and decision makers. However, project decisions are affected by individual behaviour and the institutional framework.
There exist several biases that might affect investment decisions: anchoring, overconfidence, loss aversion, representativeness, aversion to ambiguity, endorsement effect. Capturing behavioural aspects as well as uncertainty, e.g. of energy systems, enables offsetting perfect foresight of optimization and equilibrium models.
“Behavioral issues in financing low carbon power plants” – Liang and Reiner, 2009
“The effects of the financial system and financial crises on global growth and the environment” – Anger-Kraavi and Barker, 2015
“Review of models for integrating renewable energy in the generation expansion planning” – Dagoumas and Koltsaklis, 2019
“Closing the green finance gap – a systems perspective” – Hafner et al., 2020
“Macro-economic and financial policies for sustainability and resilience” – Arestis, 2021
Liang, X. and Reiner, D. (2009) Behavioral issues in financing low carbon power plants, Energy Procedia, 1:1, 4495-4502. DOI:https://doi.org/10.1016/j.egypro.2009.02.267.
Dagoumas, A.S. and Koltsaklis, N.E. (2019) Review of models for integrating renewable energy in the generation expansion planning, Applied Energy, 242, 1573‐1587. DOI:https://doi.org/10.1016/j.apenergy.2019.03.194.