Hi,
I have a few interviews coming up with prop trading firms and it seems most of the questions will be on game theory strategies. I was wondering if there was anyone who works at a prop firm that would be willing to help me understand what I should be looking to do for game theory questions? I always hear find the EV and play based on that but what does that truly mean?
Using a game where highest card wins: EV of a standard deck of cards is 7, would I only bet if my card is 7 or higher? Any dumb down version of this would be greatly appreciated. Also if you are in the industry please feel free to shoot me a pm with some advice. Thanks in advance!
That is not game theory, that is probability. Look up the Jane Street guide to interviewing there. They put out a guide for what to expect.
Thanks for the correction. If that’s not game theory then what exactly are ‘game theory’ questions?
Expected values, conditioning, updating expectations, etc are classic probability questions even if they frame it as a card "game." Look up the definition of expected value (it's like a risk-adjusted average). Are they framing this question as what do you do if you draw a number? For example if the expected value of a deck of cards is really 7, and you get an 8, and your opponent has an unknown card, and you win $1 if your card is higher or you lose $1 if your card is lower, should you play? Calculate the conditional expectation of what your opponent has drawn given that you have already drawn an 8 (it should be lower than 7 because you took out one of the higher cards and therefore lowered the average). Maybe they will ask you to calculate your chance of wining. Those are some possible set ups from what you are describing.
A "game theory" question is more about what different actors will do with decisions that impact one another. Look up the prisoner's dilemma for a classic example. I have not seen this type of question very often in interviews, though it's certainly possible.
This will describe all the basics
https://www.janestreet.com/static/pdfs/trading-interview.pdf?utm_source…
This is a more academic introduction. Lecture notes from the MIT intro to probability course
https://ocw.mit.edu/courses/electrical-engineering-and-computer-science…
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