Enhancing Farmer Acceptance of Water Allocation Schemes Through Integrating Prospect Theory and Bi‐Level Optimization

Abstract Effective yet farmer accepted water allocation policies are paramount for sustainability, but most water allocation models often fail in practice. Predicated on assumptions of perfect rationality and single‐level optimization, these models neglect farmers' psychological decision‐making processes (e.g., loss aversion), leading to low acceptance and resulting implementation challenges. To bridge this critical gap, this paper introduces a novel framework that enhances farmers' acceptance of water allocation schemes. This framework integrates Prospect Theory (PT) to model farmers' behavioral responses to gains and losses, combined with Bi‐level Multi‐objective Programming (BLMOP) to capture hierarchical interactions between water managers and farmers. By embedding PT‐derived reference points into BLMOP objective functions, we translate psychological thresholds into actionable allocation rules. Application in China's Heihe River Basin demonstrates how the framework aligns with farmers' psychological reference points to achieve behavioral efficacy, enhances water‐use efficiency through optimized allocation, and boosts stakeholder satisfaction via bi‐level coordination. Results indicated: (a) PT quantification reveals key psychological thresholds (e.g., 1.98 × 10 5 CNY/ha prospect return for economic crops), identifying scenarios that best align with farmers' expectations; (b) Incorporating PT insights under variable flows reduced total allocation by 1.80 × 10 5 m 3 , demonstrating efficiency improvements driven by behavioral insights, while increasing composite planting satisfaction by 15.52%; and (c) The PT‐BLMOP framework outperformed benchmarks, achieving the highest comprehensive satisfaction index (0.67) and increasing total crop prospect returns by 289 million CNY. The findings support the transferability of this framework for developing high‐adoption, behaviorally informed water policies aimed at water‐scarce agricultural systems.