1. It's a way to (pointlessly) delay adulthood.
2. Fear of the job market.
3. Don't know what else to do.
4. Magical thinking (despite the numerous articles out there, like mine (http://jakeseliger.com/2012/05/22/what-you-should-know-befor...) that attempt to dissuade it). I think this is the biggest issue. In addition, there seems to be a Lake Woebegone effect: Everyone thinks they're going to be above average.
EDIT: I forgot to add another important one: Grad school is pretty easy and fun! You get to hang out on campus, think about ideas, take a minimal number of classes, do a bit of teaching, and have copious free time. The problem is that, as time advances and your priorities start changing (want a real life / job, date people who don't date people whose lives aren't together, etc.), reality starts to intrude. Many grad students have an unacknowledged Peter Pan complex.