Alchemist's Coin

What this conditional decision interview question tests

This is an easy probability question that combines expected value with optimal decision-making under incomplete information. It rewards clarity in setting up the problem and reasoning about when to exercise an option conditionally.

The core skill tested is the ability to recognize that observing information before deciding changes your payoff. You must calculate the expected value of the contract by considering, for each possible outcome you might observe, whether it makes sense to pay the additional cost. This requires working backward from the decision rule to the contract's fair value.

• Expected value and weighted probabilities
• Conditional decisions and optionality
• The value of information