Any time you replace objective evaluation of people with subjective holistic evaluations, you get a system that seems more humane and less sharp-cornered, but you also get corruption. It's the question of which is better: sheer cold fairness or sticky warm humanness that can devolve into corruption or even a reputation economy (meaning, "extortion system") if the powerful abuse their roles in the judgment of others.
You can look at it charitably and say that the VCs are doing good by caring more about the reason for failure than the fact of it. Or you can look at it negatively and say that it creates a culture where (a) slimy operators good at creating impressions can play politics and let their companies rot, knowing that their backers will see their failures as "good faith" regardless of the facts, and (b) those with power over the "holistic" element of evaluation evolve into reputation-making and -breaking extortionists. The "right answer" is somewhere between the two.
With Chicago, I think the problem isn't that there's a lack of good jobs for technical people, but that the job-hopper stigma is still very strong in finance (and that's true everywhere; it's not geographical, and the attitude is similar in SF finance). So it's hard for a trader to bounce back if the startup doesn't work.
If hedge funds were willing to hire people with typical startup/tech CVs-- those tend to show the brutally honest behavior of job-hopping (even at 2 years, or 6 months) if one's career is stagnating, rather than sticking around for 5-6 playing the system or slacking like white-collar people are "supposed" to do when passed over, because it's somehow more disloyal to leave than to slack for years-- then people would less afraid to do startups. The fault isn't with Chicago per se. It's with finance and the F500 world and their anachronistic hatred of the "job hopper".
There's a lot that I don't like about California startup culture but I think job hopping is a good thing. If you're ambitious and it's clear that you've been passed over for advancement, it's better for everyone to move on than to stick around and suck out a salary and play against the system for 5+ years because the white-collar world thinks you're "supposed" to show "staying power" or "loyalty".
At any rate, I think you're completely right. I don't think that California is more or less risk averse than the rest of the country, nor do I necessarily think that risk seeking is even a virtue. California entrepreneurs get to look more risk-friendly just because there's such a high frequency managed outcomes (acqui-hires and executive positions made available if the VCs judge you to have failed in good faith) that VC-funded entrepreneurs can count on one. Where it's pernicious is when these founders justify massive equity disparities (compared to the 0.5% that the first engineer gets) because they "took all the risk" when, in fact, most of these VC-funded founders don't take any more risk than any other corporate employee.