Estimation plus market making, common in the final round.
Price something you cannot look up
The question
Make a market on the number of petrol stations in the country you are sitting in.
Have a go before you open the solution. If you are stuck after a few minutes, the first paragraph below is usually enough of a nudge.
Show the worked solution
The answer
Estimate a central value by decomposition, then quote a width proportional to your honest uncertainty.
Decompose first: population, cars per person, tanks filled per week, throughput per station. Say the arithmetic out loud so the interviewer can follow the assumptions.
Arrive at a central estimate, then translate confidence into width. If you believe you are within a factor of two, your quote must be wide enough to survive being wrong by that much.
Quote, then trade. If they hit your bid immediately, consider whether your estimate was too high before requoting.
The mistake candidates make is quoting a tight market on a number they cannot possibly know. Width is honesty, not weakness.
What it is testing
Whether stated uncertainty and quoted width actually match.
Try these next
Make a market on two dice
Warm-upMake me a market on the sum of two fair dice.
The informed counterparty
StandardYou quote a market on a coin flip paying 100 for heads. Your counterparty may have seen the coin. How should your quote change?
You are long and you do not want to be
StandardYou have been lifted repeatedly and are now long well beyond your limit. What do you do with your quote?
How wide should the spread be?
HardWhat determines how wide you quote?
Preparing properly
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