Decision framework for constructing prediction markets

Prediction markets are methodologies to aggregate dispersed knowledge on uncertainty from the crowd via a market mechanism. Various experiments using the prediction markets in real-world applications yield better accuracy than the polls. Most research on prediction markets focus on technical details of a particular market type. However, no guidelines exist on how to systematically decide on various factors related to the construction of the prediction markets. Without a framework, it is difficult for unfamiliar practitioners to take advantage of this useful concept. This paper proposes a decision framework along with systematic procedures to design and construct prediction markets. The framework comprises of three layers. The first two layers address the design and construction of the market according to the requirements, while the last one presents factors that have effects on market accuracy and liquidity.