Regular readers of this blog know that I’ve been a huge fan of game mechanics for years.  Game mechanics is a loose term for a variety of insights into the neurological and sociological underpinnings of the games that humans like to play.  In the past decade, there has been a massive growth in our understanding of game mechanics, even to the point now where you can’t go 10 feet in the Valley without tripping over a venture capitalist dropping the term in conversation.

This past weekend, I had the chance to chat with an old friend from a former start-up, and I was talking about why I love Zynga, and why game mechanics were one of the more interesting product insights to come out the last few years of product design.  The conversation moved on to catching up on old friends and careers, and the obvious hit me: our very careers in Silicon Valley are based on game mechanics.

Primal Response Patterns: Schedules of Reinforcement

In Amy Jo Kim’s lecture, Putting the Fun in Functional, she outlines some of the basic neurological drivers for response patterns to reward.

I’m going to grotesquely simplify the concept for the purposes of this post.  Real students of psychology & neurobiology – hold your nose while you go through this section.

It turns out that there are demonstrated patterns for response (neé addiction) for different types of reward systems:

• Simple: You hit the lever, you get a treat.  Most animals will understand and play this game. (Hello, Pavlov)
• Variable Interval: You hit the lever, but sometimes you get a treat, sometimes not.  This game turns out to be even more addictive, likely due to the combination of uncertainty (triggers fight-or-flight) and then the rush of the intermittent reward when it comes. (When you go to puppy school, you learn to *not* give your dog a treat every single time they do something right.)
• Variable Interval, Variable Payout.  The most addictive of games.  You hit the lever, and sometimes you get a treat, and sometimes you don’t.  But sometimes the treat is big, and sometimes the treat is small.  (Hello, slot machine)

I was explaining this fact to my friend, when it occurred to me that this is the game that we all play in Silicon Valley.

Addiction: Hypergrowth Tech Companies

This pattern explains a lot about why Silicon Valley is so… addicting.  Venture capitalists invest capital into startups seeking outstanding returns.  Most engineers, on the other hand, invest their human capital to get the same result.  Engineers join hypergrowth companies with the assumption of receiving an equity stake.  That equity stake is the difference between making a good salary, and potentially hitting a step-function in their net worth.

Let’s play out the reward pattern:

• Variable Interval: Tenure at tech companies can be anywhere from a few months to a few decades, however it averages about 2-3 years.  Sometimes startups go bankrupt less than 2 years after you join or found them.  Sometimes they get acquired.  Sometimes they become truly large, successful ongoing companies.  The timing definitely varies.  Many people would count themselves lucky if one in three of the companies they join turns out to be successful at a level that provides a meaningful value for their equity.
• Variable Payout: Sometimes tech companies go bankrupt.  Other times they can produce equity worth 2x your salary.  Sometimes 10x.  Sometimes 100x+.

The lever is joining, and the payout is equity.

Is it any wonder that, after three decades, we’re all still addicted to this game?