When you are in junior high it starts. Your parents, relatives, and other adults start telling you that education is important, that it is the most important thing you'll ever do. They are probably right for most of us at that point in our lives. By the time you are in high school you are told by the same well-meaning adults that college is a great thing. And it is for most people. But then they sometimes tell you to "get all the education you can get." That's when well-meaning adults start misdirecting you.

If you were to take their advice seriously, you would plan a higher-education career consisting of a bachelor's degree, a master's degree, several Ph.D.s, and a number of post-doctoral fellowships. Then, indeed, you would be getting all the education you could get. Some people actually do that, but not very many. In fact, a relatively small percentage of adults go to graduate school and get an advanced degree. Despite what your parents may have told you, those people who don't get advanced degrees are more than likely behaving rationally.

What does rational mean in this instance? It means applying the rule of thumb given in the section above. One does not engage in any activity past the point at which marginal benefit equals marginal cost. Going to school year after year eventually leads to the point at which marginal cost exceeds marginal benefit.

What happens, of course, is that the law of diminishing marginal returns enters in to the learning process in which you are engaged. After a while, the incremental benefit of learning new skills starts decreasing as you continue to increase the inputs—your time, work effort, and money income. At some point this decreasing marginal benefit drops below the increasing marginal cost. Why does marginal cost increase? It increases because as you obtain more education and get older, your earning capacity goes up. That means that your opportunity cost of not working (your forgone income because you are still in school) thereby goes up.

My advice is, of course, stay in school—but only up to the point at which the marginal benefit of doing so just equals the marginal cost.

Copyright © 1995 - 2009, Pearson Education, Inc., publishing as Pearson Addison Wesley Legal and Privacy Terms