Can't we just assume that people entering a password are checking to see if anyone is trying to look at their screen before they enter a password?
It's not that simple, for a number of reasons.
You might be in a public location, where there are too many other people around for you to monitor. Don't forget that you don't have eyes in the back of your head.
You might be in the presence of people you don't trust, but for social reasons you do not want to, or are not supposed to, act outwardly distrustful (such as covering the screen with your hand, or asking them to turn around). They might even be close friends, family, or co-workers, or people you're in a conversation with. It's not always convenient to relocate yourself.
You might be in the presence of people with good vision and memory, who might accidentally see parts of your password.
So no, you might not notice everyone who might look at your screen. No, you might not know if they're looking or not. No, you might not be in a social position to stop them from looking. And no, it's not only the "bad actors" you need to worry about—anyone could mistakenly catch a glimpse. So it's convenient for the default to be safe against shoulder surfing. It can be nice when a program gives you the option to display the password visually, but all features take work to implement. It's important to have, at a minimum, the mode where the password is invisible. And it's better to have that as the default.