28 Mar

Cambridge Economics Interview Experience

You submitted your economics personal statement and UCAS application in September of the year in which your turned 17. You want to study economics and applied to Cambridge, LSE, UCL, Warwick and Durham. Your standards are high, you are either going to study economics at Cambridge or taking a gap year and try again, you tell yourself (not recommended by the way). Others have advised against it, buy you are stubborn.

You are invited for an interview in cold frosty December of that year. You go online and try and find all the resources you can, how do I prepare, what questions will they ask me, what am I expected to know, what should I cram in? The unfortunate truth, if you weren’t preparing for the last 6-12 months, unlikely you you can rush the preparation in one month.

Your UK university economics personal statement and Oxbridge application done with you from start to finish.

The dawn broke gently, painting the sky in shades of pink and orange, as a you awake with a mixture of excitement and trepidation. Today is the day you have anticipated for months. The faint smell of coffee brewing in the kitchen downstairs wafted through the air, providing a comforting reminder of the familiar rhythm of daily life. However, today was far from ordinary, and you feel the weight of the opportunity that lay ahead.

After a quick breakfast and a reassuring pep talk your parents, you step out into the crisp, wintry air. You feel the crunch of frost-laden grass under your feet as you walk to the bus stop, the cold air biting at your cheeks. As the bus approaches, you feel the familiar knot of anxiety tighten in your stomach. As the bus trundled through the streets, you gaze out of the window at the bustling city, trying to calm your racing thoughts. You ponder the interview questions you might face, wondering if you have prepared enough.

Arriving at the train station, you enter the cavernous building and navigate your way to the platform. The platform is alive with the comings and goings of people, each absorbed in their own daily routine, for you however, this is a special day.

The train journey to Cambridge is a blur of green countryside and fleeting thoughts. As the scenery whizzes past, your mind wanders to the storied halls of the university that awaits you. You imagine the generations of scholars who had walked those same halls, their footsteps echoing through the centuries. Upon arriving in Cambridge, you marvel at the city’s timeless beauty. The towering spires and ancient stone walls whisper secrets of a bygone era, and you feel a sense of awe at the thought of becoming part of this rich tapestry of history.

As you approach the college gates, you feel your heart rate quicken. The imposing wooden doors stand before you. As you enter the college grounds, you are struck by the hushed serenity of the manicured gardens and courtyards. It seemed as though time itself has slowed, as if in reverence to the moment.

You make your way to the waiting area, where you are greeted by a kind-faced woman who welcomes you with a warm smile. Her reassuring presence helps to steady your nerves as you take a seat among the other applicants. Each face tells a different story, but they all share the same burning ambition that had brought them to this place. Your look around at the other applicants trying to hide the fact you cannot help quickly judge each one. One is dressed in a tuxedo, hair finely combed back, reclining on the couch with his legs folded, sipping a coffee whilst perusing through the Financial Times. As if his mother gave birth to him in that very waiting room and his entire life has been nothing but for this purpose. You feel slightly intimidated so you avoid him and go up to a small group who seem more inviting to introduce yourself.

The minutes tick by, each one feeling like an eternity. Finally, a door creaks open, and you hear your name called. Taking a deep breath, you rise to your feet and make your way into the room conscious that all eyes are on you. As the door closes behind you, the interview begins, and you find yourself at the heart of a story that is yours alone to write.


Interviewer: Good morning. I hope you’re feeling well today. Are you ready to begin?

Applicant: Good morning, yes, I am ready. Thank you.

Interviewer: Great. Let’s start with this question: Two companies, A and B, are deciding whether to enter a new market. They can choose to enter (cooperate) or stay out (defect). Their payoffs depend on their decisions. If both enter, each earns £6 million. If one enters and the other stays out, the one entering earns £12 million while the one staying out earns £2 million. If neither enters, they both earn £4 million. If you were company A or B, what would you do to maximise your pay-off?

Applicant: Hmm, I think as a first step it’s helpful to consider what the different possible scenario are, would you mind if I wrote them down on a sheet of paper?

Interviewer: Not at all, please go ahead.

Applicant: So, I think there are four possible outcomes in this scenario:

  1. Both companies cooperate (enter the market): Each company earns £6 million.
  2. Both companies defect (stay out of the market): Each company earns £4 million.
  3. Company A cooperates while Company B defects: Company A earns £12 million, Company B earns £2 million.
  4. Company B cooperates while Company A defects: Company B earns £12 million, Company A earns £2 million.

Based on this, I think both companies will chose to cooperate and earn £6 million each as in all scenarios above the pay-off to enter the market and cooperate is always higher than the alternative of staying out.


Interview: Excellent, that is the correct answer, but can you explain in a little more detail the decision making process from each company’s perspective?

Applicant: Sure, I’d begin by analysing the decisions for each company:

  • If Company A enters the market, Company B can either enter and earn £6 million or stay out and earn £2 million. Company B will choose to enter.
  • If Company A stays out of the market, Company B can either enter and earn £12 million or stay out and earn £4 million. Company B will choose to enter.

So regardless of what A does, B will always enter the market.

Now, let’s look at Company A’s decisions, given Company B’s choices:

  • If Company B enters the market, Company A can either enter and earn £6 million or stay out and earn £2 million. Company A will choose to enter.
  • If Company B stays out of the market, Company A can either enter and earn £12 million or stay out and earn £4 million. Company A will choose to enter.

Likewise, regardless of what B does, A will always enter the market.

As such, the optimal solution for both parties here is to cooperate and enter the market.

Interviewer: Great, that’s exactly what I was looking for. Do you know the formal term for the solution that you have just arrived at?

Applicant: Sorry, I don’t think I do.

Interviewer: You have arrived at the Nash equilibrium, a term used to describe a situation where each player’s decision is optimal, given the decision of the other player. In other words, neither player has an incentive to change their strategy unilaterally. In this case, the Nash equilibrium occurs when both companies decide to enter the market, as they each earn £6 million.

Applicant: Oh, that makes sense, thank you for explaining that.


Interviewer: In such a scenario, do you think the Nash equilibrium is always for both companies to enter the market, or do you think if we changed some of the parameters, we could arrive at a new Nash equilibrium?

Applicant: Hmm, I think if the pay-offs changed there could be an alternate Nash equilibrium where it may be optimal for one or both companies to stay out.

Interviewer: Could you come up with a different set of pay-offs that lead to a different Nash equilibrium talking me through your thinking process.

Applicant: Sure, so let me try and come up with a pay-off structure where the Nash equilibrium is for company A to stay out and B to enter. A simple way to do so would be to simply zero out any pay-off A gets by entering the market, so taking the same structure we had before, we make the following changes to 1 and 3 below:

  1. Both companies cooperate (enter the market): B earns £6 million and A earns £0 million.
  2. Both companies defect (stay out of the market): Each company earns £4 million.
  3. Company A cooperates while Company B defects: Company A earns £0 million, Company B earns £2 million.
  4. Company B cooperates while Company A defects: Company B earns £12 million, Company A earns £2 million.

If we know look at it from each company’s perspective:

  • If Company A enters the market, Company B can either enter and earn £6 million or stay out and earn £2 million. Company B will choose to enter.
  • If Company A stays out of the market, Company B can either enter and earn £12 million or stay out and earn £4 million. Company B will choose to enter.

So regardless of what A does, B will always enter the market.

Now, let’s look at Company A’s decisions, given Company B’s choices:

  • If Company B enters the market, Company A can either enter and earn £0 million or stay out and earn £2 million. Company A will choose to stay out.
  • If Company B stays out of the market, Company A can either enter and earn £0 million or stay out and earn £4 million. Company A will choose to stay out.

So regardless of what B does, it is always optimal for A to stay out.


Interviewer: Yes, that’s right, thank you. Let’s move on to another topic, I assume you are familiar with the Taylor rule for monetary policy?

Applicant: (Thinks to himself: damn, I have no idea what that is, but he expects me to know it…) Sure, I think I’ve come across that.

Interviewer: Great, well let’s assume that the economy follows the Taylor rule for monetary policy, which is given by the equation:

i_t = r_t + π_t + α(π_t – π) + β(y_t – y_t),

where i_t is the nominal interest rate, r_t is the real interest rate, π_t is the inflation rate, π* is the target inflation rate, y_t is the output, y*_t is the potential output, α and β are the policy parameters, and t denotes the time period.

Can you determine the exact time path of the nominal interest rate (i_t) for the next 100 periods, given the following assumptions:

  1. The economy has heterogeneous agents with different income levels, risk preferences, and utility functions.
  2. There are multiple sectors with various degrees of market power and externalities.
  3. The central bank can implement monetary policy with perfect foresight.

Narrator: your heart sinks as you contemplate your potential next moves. Should you ask for a toilet break whilst you try and look up a solution online?

To be continued….

If you found this helpful, consider if our consultancy and mentorship program is right for you. We go into much more detail than the above as we work with select students and applicants to ensure they are over prepared for their Cambridge economics interview.