The test is an illusion. The guy administering the test doesn't believe it has any value. He's out for his own advantage, or even just for his own amusement, and his motives are opaque to his victims. The students are flattered or hurt according to his whim, but the world in which they think they're living -- the world in which the test is valid -- is an utter fabrication. That's their circle of firelight. Their very belief in the test protects Venkman, who has ultimate authority so long as they keep playing. This opening scene's a joking restatement of the Lovecraftian (and Gozerian) horror worldview.