The Silicon Valley Cascade
Reading this article really got me thinking. Why are so many startups in Silicon Valley? It seems like many founders of startups these days have an urge, rather a need, to be in the Valley. The reasons are numerous, but how do people outside of the area decide that they need to move over there to build a company. We constantly hear success stories in the media regarding how some X Silicon Valley startup received Y million dollars in funding. There even is a movie all about one! (The Social Network if you’re confused.)
People outside of the Valley are subject to this barrage of information. After hearing and seeing enough about it, they might be more inclined to go to the Valley themselves to build their own startup. It seems that these entrepreneurs are subject to an information cascade regarding whether they should move out to Silicon Valley. These people are constantly hearing such good stories which can be modeled as high signals. Very rarely do we hear in the news that some X startup which moved to the Valley failed. These stories just fizzle out, depriving us of the low signals. Thus, we receive so many high signals that we are more probable to go to Silicon Valley. The more people that go out, the more high signals we receive and the even more likely we are to follow in other people’s footsteps.
Information cascades are not the only reason why people move there, but it sure seems like a prevalent one.