Financing investment

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, enable offsetting perfect foresight of optimization and equilibrium models.

Relevant papers:

Liang and Reiner, (2009)

Dagoumas & Koltsaklis (2019)

References:

Liang, X., D. Reiner, 2009, Behavioral issues in financing low carbon power plants,  Energy Procedia, Elsevier.

Dagoumas, A.S., N.E. Koltsaklis, 2019, Review of models for integrating renewable energy in the generation expansion planning, Applied Energy 242, 1573‐1587

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