I, too, didn't get the end, unless it was supposed to mean that his third alternative was an illusion. I thought just now that his third alternative might have been sabotaging the mill so that he would end up like his friend, which would save him from living his village's adult male life but not ruin his family's honor, but then I remembered there was a line something like "he didn't know how he would have the courage to look in that pool again afterwards" which seems to imply that he intended to survive the ceremony.
But it was definitely a good thought-provoking and imagery-laden story.
Given the fact that the "third alternative" line comes immediately after he sees the paper wrapper go over the cliff, I think it was supposed to be that he could just jump and kill himself, rather than face the mill or face the unknown at the other side of the border.
The way I interpreted it, the reasoning is something like the follows:
A - He's too afraid to go back, and therefore feels compelled to go forward, despite his father's warning about other customs being worse (which may or may not have basis in fact), and the fate of his family.
B - He realizes he could also kill himself and therefore avoid having to live with the consequences of each choice.
C - He now is in a strange case of non-transitive preferences: going forward was better in his eyes than the mill, BUT jumping is better than going forward - since the outcome is predictable and his troubles will be over; yet at the same time facing the mill is better than jumping, since he wants to live.
D - In other words, because he's making his decisions emotionally rather than rationally, adding the third option shifted the weight of the other options. The mill is now the best choice of the three.
Anyway, that's just how I've tried to reconstruct his mindset. But I think it would have been better if we would have seen a bit more of the process, as the above guess has its own problems.