In the interview game, how tight should you quote?

Question

An interviewer says: "Make me a two-way market on the number of gas stations in this city." You estimate maybe $500$ , but you're genuinely unsure, the true number could plausibly be anywhere from $300$ to $800$ . The interviewer will then trade against you at your quote.

How wide should you quote, and what is the interviewer actually testing?

Accepted Answer

Center on your best estimate. Fair value is your point estimate, 500. That's where the market is centered. Width should reflect your uncertainty, quote wide. Something like 430 / 570 (a 140-wide market), not 495 / 505. Here's the reasoning the interviewer wants to hear: - The interviewer may know more than you. They picked this question; they might know the real answer. If you quote 495 / 505 and the truth is 700, they lift your 505 offer and you've "sold" something worth 700 for 505, an instant, guaranteed loss. A tight quote against a possibly-informed counterparty is the winner's-curse tra…

In the interview game, how tight should you quote?

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