Clark’s Option Theory: Making the Most of Opportunity

Two Get Rich Slowly readers recently asked whether education is always a good investment. Lisa and Jethro are pondering their futures and wondering whether they should borrow money in order to go back to school.

Both Lisa and Jethro seem to be looking at the decision primarily from a cost/benefit viewpoint: An advanced degree will cost x dollars and require borrowing, but their salaries will rise to x dollars when their new credentials allow them to secure better jobs. Is it worth taking on debt?

GRS readers might benefit from taking a different approach to the issue, one based on Clark's Option Theory.

In finance jargon, an option is the right to buy or sell a security at a specified price within a set time. But Clark's Option Theory takes a more general “lifeview” of options — a perspective that any of us, even the financially disinclined, can find useful. Clark's Option Theory says that “option” is simply another word for “opportunity,” and that all decisions can be seen as creating new opportunities. The key point is that the value of a new opportunity is not precisely quantifiable, but is likely to be great — and more importantly, unavailable without “exercising the option.”

Here are a couple of examples:

    • Let's say you want to write a book. For most people, that's a terrible idea from a moneymaking standpoint — it's like moving to Australia so you can date Elle McPherson, or starting a rock band because you want to become famous — sweet thoughts, but dreadfully naive. But writing a book creates opportunities that might not arise any other way — opportunities to teach, become a consultant, or develop authoritative knowledge in some field. (Or, in some cases, to create a lasting work of beauty and truth.)

 

  • The same goes for starting a business. When you start a new business, suddenly you're an entrepreneur, not just a worker. Calling on customers or prospects, you're likely to meet with other owners and managers, and discover whole new realms of opportunity. Even if your venture doesn't ultimately succeed, the experience of going out on your own will have created opportunities (options) unattainable in any other way.

This is also true with education. Eighteen years ago I entered a part-time MBA program. It took me seven years to finish — the longest period allowed without getting booted out! Many times I came close to quitting, wondering whether the time, money, and effort were worth it.

Today, I'm grateful to have stuck it out, not just for the knowledge and career advances it enabled, but because it allowed me to become a teacher — an unexpected but welcome career change. Now I'm pursuing a doctoral degree — something inconceivable to me even five years ago — but something that wouldn't have been a viable option without the MBA. Pursuing an advanced degree was creating brand new options for me, though I didn't know it at the time.

So is education always a good investment? No. But if you have serious thoughts about going back to school, that's a powerful sign that it's a very good idea for you. Heed your intuition. It's trying to create new options for you.

You can read more from Tim at The Prosperous Peasant blog.

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dawn
dawn
12 years ago

If somebody has the desire to improve and learn new skills, I’d say yes to pursuing further education. And you never truly know what doors may open because of it.

SJean
SJean
12 years ago

Interesting way to look at it! Good article, thanks!

I am of the opinion that education is usually a good idea if you have a clear plan of what you are doing with it.

Terry
Terry
12 years ago

Good points about the non-monetary values of writing a book and starting a business.

I agree with SJean that you should be sure of the direction you want to go before moving ahead with with advanced education.

Good article!

Claire
Claire
12 years ago

I love this blog posting! Yes, I agree that without exercising options we often don’t allow opportunities into our lives. As some readers have pointed out before, if we look at child-bearing today only on a cost/return on investment analysis then no one would have children. I’m doing a Master’s program and it already provided far more opportunities than I thought were possible. However, they are not equating to money at this time. I’m not done with the program yet either. I have met a whole different caliber of people than just having a bachelor’s and that’s priceless when you… Read more »

Erin
Erin
12 years ago

I strongly agree with this. I did an evening MBA program – it took me 4 years and I finished last May. I am making at least 30% more than I was when I started the program, but that may have happened anyway as I progressed in my career and that was not my motivation. It was especially useful for me because I did not take any business classes as an undergrad (I majored in Journalism and Poli Sci). I gained knowledge outside my functional discipline of marketing, met great people, and I don’t know that I would have had… Read more »

Jeff
Jeff
12 years ago

A simple ad on is what type of day to day job you’re going to have after you’ve obtained this education. Sure, I make more money than I likely would have without my education, but what I really love about my degree is that I was interested in the material, and I’m constantly interested in my job.

You can live to work, or work to live, but if you love what you do, you’ll never have to work a day in your life.

Camilla
Camilla
12 years ago

I’m *loving* the perspective. I know i can be very narrow minded in the way you’re pointing out, to think that just because something might not to go to my specific plan that is has failed. I love the idea of being more open minded about all the benefits every day brings, and the opportunities you create simply by learning, or remaining active, or changing your environment. Great post!

plonkee
plonkee
12 years ago

Of course the other side, is that when you take up one opportunity, you are missing out on other opportunities. If you go back to school or start your own business or whatever, then that means that you can’t do something else. And the something else would probably lead to positive outcomes as well.

There is never a perfect decision.

Roger
Roger
12 years ago

Keep in mind, too, that there are lost compounding opportunities. If you stay in school until you’re 30 you will probably be wonderfully well-rounded but will have missed the opportunity to compound what you might have saved if you had graduated at 22. If education makes you happy, by all means go for it. But recognize that there is a fetishization of education within the academic community–and it’s sometimes hard to recognize that advanced education isn’t the only way to succeed in life. I would argue that the things you need to succeed in small business, for example, are not… Read more »

DermDoc
DermDoc
12 years ago

In medicine, the mantra is “more education is always better.” I am not sure I agree. More education is better if you want to be highly specialized. However, spending year after year in fellowships can take you far down a road; you might later discover you don’t want to be there.

Ryan S.
Ryan S.
12 years ago

Your field of study/field of work matters a lot in this. As a social worker in Hawai’i, I can tell you that the master’s level is a minimum to make a livable wage; however, you can make more at that level than a PhD in social welfare would make at their typical (education) job. OTOH, a registered nurse who may not even be a BSN makes more than a MSW…

Tim
Tim
12 years ago

Claire makes a good point. Many people with MBAs say the most valuable thing about their program was the contacts/networking, both personal and professional. plonkee’s point about opportunity cost is well taken, too. Here’s one way to think about it if you’ve already decided to do an MBA. Option 1: If you’re doing it to accomplish a major career change and achieve a big jump in salary, try to get into a top-notch, namebrand school. Option 2: If you’re doing it to simply polish your skill set and advance in your current career, aim for a part time program at… Read more »