Defined terms for the annuity market and lifetime income landscape.
Prospect theory is a descriptive model of how people evaluate gains and losses under uncertainty, in which outcomes are judged relative to a reference point rather than in absolute terms, and losses are weighted more heavily than equivalent gains.
Reference dependence is the principle, foundational to prospect theory, that outcomes are evaluated as gains or losses relative to a reference point (typically the current position, an expectation, or an aspiration) rather than in absolute terms.
Regret aversion is the tendency for individuals to weigh the anticipated cost of regret from a decision that turns out badly more heavily than a straightforward expected-outcome analysis would predict, producing choices that reduce the risk of regret even at the cost of expected value.
The representativeness heuristic is a decision shortcut in which the probability that a case belongs to a category is judged by how closely the case resembles a stereotype of the category, ignoring the base rate of the category in the relevant population.
The risk aversion versus loss aversion distinction separates a preference for certainty over uncertainty of equal expected value (risk aversion) from an asymmetric response in which losses weigh more heavily than equivalent gains around a reference point (loss aversion).
