Defined terms for the annuity market and lifetime income landscape.
Optimism bias is the tendency for individuals to expect favorable future outcomes at rates that exceed what past experience or base rates would support, and to expect unfavorable outcomes at rates lower than those references would support.
Overconfidence is the tendency for individuals to hold beliefs about their own knowledge, skill, or judgment that are more certain or more favorable than the underlying evidence supports.
The planning fallacy is the tendency to underestimate the time, cost, and difficulty of completing a future task, and to overestimate the likelihood that a plan will unfold as intended, even when past experience with similar plans should predict otherwise.
Precautionary savings motive is the desire to hold savings against uncertain future expenses, particularly health costs, long-term care, and unexpected obligations, which raises the value an individual places on retaining unrestricted access to capital during retirement.
Present bias is the tendency for individuals to give disproportionate weight to immediate rewards and costs relative to those in the future, producing choices that favor the near term more than a consistent time preference would predict.
