Pricing for Information Revelation in Demand Response: A Strategic Communication Approach

2026-03-03

AI Summary

This study addresses the challenge of strategic consumers misreporting private information—such as their electricity consumption flexibility—in demand response programs, which undermines aggregator scheduling efficiency. Within a cheap talk game framework, the work proposes a signaling mechanism that leverages retail electricity pricing to incentivize truthful disclosure from multiple strategic consumers. Key contributions include demonstrating that the multi-sender game decomposes into independent subgames, introducing a pre-announced tariff structure to guide truthful reporting, deriving the optimal uniform price that maximizes information revelation, and establishing necessary and sufficient conditions for the existence of an informative equilibrium. Simulation results show that the proposed mechanism recovers up to 95% of the system utility achievable under full information, substantially outperforming benchmark approaches that ignore price-based signaling.

Technology Category

• Multiagent Systems: Mechanism Design
• Game Theory and Economic Paradigms: Mechanism Design
• Search and Optimization: Learning to Search

Application Category

• Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystems
• Security and Privacy: Large-scale security measurements
• Search and Retrieval-Augmented AI: Web learning to rank, online learning, and counterfactual learning for ranking

Abstract

Many smart grid frameworks, such as demand response programs, require accurate information about consumers' parameters (e.g., flexibility) at the aggregator side to optimize grid operations. Existing works typically rely on perfect information assumptions or complex incentive-compatible mechanisms; however, in voluntary settings, and in the presence of strategic consumers, possibly implemented by automated intelligent agents, private parameters may be misreported due to strategic incentives. We analyze this communication setting using cheap-talk game theory, delivering four key insights. First, the nontrivial scenario of multiple strategic transmitters (consumers) turns out to be tractable for the case study of interest: we prove that complex strategic interactions among multiple consumers decouple into independent subgames. Second, we demonstrate that a pre-announced retail price can be exploited as a design lever to control the information revealed by the consumers and therefore the overall system efficiency. Third, we derive a closed-form expression for the optimal uniform price that maximizes information revelation. Finally, we characterize the equilibrium structure to identify when communication is informative. Simulations show that a properly designed price for the communication scheme can recover up to 95% of the ideal system utility (i.e., under perfect information reporting), whereas a price-unaware choice leads to significant losses in social welfare.

Problem

• demand response
• strategic communication
• information revelation
• smart grid
• private parameters

Innovation

• strategic communication
• cheap-talk game
• information revelation
• demand response pricing
• multi-agent incentives