By Joel Warner
By Michael Roberts
By Alan Prendergast
By Michael Roberts
By Michael Roberts
By Amber Taufen
By Patricia Calhoun
By William Breathes
His work has paid off: The Peter McGraw brand keeps getting stickier. In 2004, after completing his post-doctoral training at Princeton, he got a position as assistant professor of marketing at CU's Leeds School of Business. Since then, he's become one of the school's highest-rated teachers, reports his department chair, Donald Lichtenstein, and he received a courtesy appointment to CU's department of psychology and neuroscience in 2008.
McGraw's psychology background makes him a perfect fit for Leeds's marketing department. "Psychology informs so much of what we do in business, from consumer behavior to advertising to pricing," Lichtenstein explains. "McGraw is talking about taking principles from his training in psychology and actually showing how it's not just pie-in-the-sky stuff, but that this stuff is happening every day in the consumer marketplace and that you need to be aware of it."
In the process, the professor has made a name for himself at Leeds. Before he walks into each class, McGraw imagines going to a party and telling a bunch of really entertaining stories. "Just like Colt 45," he says. "It works every time." He helped launch an experimental research group at CU called the Judgment, Emotion, Decision and Intuition Lab, more commonly known as the JEDI Lab. And he's known for having research assistants hang out in the lobby of the Leeds building, handing out candy bars in exchange for students filling out unusual surveys that he's dreamed up to plumb the peculiarities of their emotions and decisions.
"Pete has a lot more courage than most academics," says Phillip Tetlock, a mentor of McGraw's who teaches at the University of California, Berkeley. "He is willing to live his research." One time, after being invited to a Thanksgiving dinner at the home of some of his colleagues, McGraw offered to pay for the entire meal, just to see their reaction to an obvious social faux pas.
All of it — the compulsive self-branding, the strange experiments — stems from McGraw's obsession with making sense out of insanity, order out of chaos. "It's a way to keep control in an uncertain world," he explains. He faced the harsh realities of that uncertain world as the son of a single working mom in New Jersey who at times fed her kids with food stamps. It made him realize the value of a dollar, but it also made him notice that most people seemed to be making major, life-changing decisions without considering the value of their money at all. Everywhere he looked, they were spending erratically, making poor investment choices, accepting gambles with risky odds — and more often than not, they suffered for it.
To solve the puzzle of all those bad choices, McGraw studied psychology at Rutgers University, then pursued his Ph.D. in quantitative psychology at Ohio State University, focusing on judgment and decision-making. He and his advisor researched why Olympic bronze medalists are more satisfied than silver medalists, and determined that because silver medalists have higher expectations, they are more susceptible to disappointment. He had basketball players take free throws from different parts of the court, asking them to rate their odds of making it before each shot — and discovered they almost always overestimated their chances and were nearly always more dissatisfied than they ought to be. By encouraging people to be more realistic about their likelihood of success — cutting expectations down to size, so to speak — McGraw and his colleagues learned they could make people much happier with their choices.
McGraw soon found himself on the forefront of a new field called behavioral economics, part of a renegade group of scholars who were beginning to question a basic tenet of classical economics: that people naturally weigh costs against benefits and make logical decisions maximizing value and profit. What started out as a fringe discipline is now an authority to be reckoned with, especially after the recent housing and banking collapse revealed that even the financial masters of the universe didn't seem to be making decisions all that logically. Nudge, a 2008 book that drew on the core concepts of behavioral economics, was named the "Best Book of the Year" by The Economist. And President Barack Obama has relied heavily on a cadre of behavioral economists to help craft his politics of change. One of those experts, psychologist Daniel Kahneman, won a 2002 Nobel Prize in Economics for his pioneering work in the field — while McGraw was sharing an office with him at Princeton.
Since joining CU's faculty, McGraw has investigated how money is used differently depending on the feeling it provokes in people — for instance, how the windfall from an inheritance is usually reserved for virtuous or practical expenses. He's looking at how policymakers opt for anti-terrorism programs that are most likely to help them avoid blame if an attack occurs instead of programs that are most likely to have results. And he's explored how funeral homes and drug companies exploit the public's tendency to consider concepts such as death and health care sacred and therefore above normal market pressures, allowing these industries to get away with charging people far more than their products and services are worth.