Goldman Sachs Takes One Of Its Interview Questions From An 18th Century French Betting Game

But in Wall Street parlance, the likelihood of a low-probability, highly-catastrophic event is known as "tail risk."

Perhaps that's why Goldman Sachs embeds a tail-risk question in the interview process for an internship (which can often turn into a job), according to a new book by New York Magazine's Kevin Roose. In "Young Money," Roose follows a crop of would-be bankers and traders as they navigate post-crisis Wall Street. One lands an interview with Goldman, where he's asked this question:

Here's a game I've just invented. The rules are that I flip a coin, and if it comes up heads, you pay me a dollar and the game is over. If it comes up tails, you flip again. If it comes up heads the second time, you pay me two dollars, and the game is over. If it comes up tails again, you flip again. Third time, you pay me four dollars for heads and the game is over, and you flip again for tails. And so on and so on, each time doubling the payout for heads, and flipping again on tails. How much would I have to pay you up front to play this game?

As Roose notes, there's no real right answer, but it's a telling question nonetheless. What you say shows your risk appetite. It's a version of Martingale, an 18th century French betting game.

In the wake of the financial crisis - the industry's most harrowing reality check since 1929 - understanding tail risk became increasingly necessary for Wall Street neophytes, lest they make the same mistakes as their subprime mortgage-happy predecessors.

"A candidate who said he'd need only a dollar to play probably wasn't thinking through the tail-risk scenarios carefully," writes Roose. "While a candidate who answered with too big a number was being excessively cautions."

You want to be right in the middle to land that Goldman Sachs gig.