Securities Based Decision Markets

Decision markets are mechanisms for selecting one among a set of actions based on forecasts about their consequences. Decision markets that are based on scoring rules have been proven to offer incentive compatibility analogous to properly incentivised prediction markets. However, in contrast to prediction markets, it is unclear how to implement decision markets such that forecasting is done through the trading of securities. We here describe such a securities based implementation, and show that it offers the same expected payoff as the corresponding scoring rules based decision market. The distribution of realised payoffs however might differ, which allows more flexibility in shaping worst-case losses. Our analysis expands the knowledge on forecasting based decision making and provides novel insights for intuitive and easy-to-use decision market implementations.