such as past income, expectations of future income, as well as factors such as education and current health (via their impact on expected income). Unemployment can have a negative effect on perceptions of welfare independently of the associated income loss. Marriage can offer a greater sense of security, given income. The influence of such factors on perceptions of economic welfare can be seen in Table A3.1 (Appendix).

Our findings are largely in line with the earlier findings of Ravallion and Lokshin (2002) which were based on Russian data. In particular, subjective welfare is rated higher by married individuals, and also exhibits a U-shaped relationship with age. Compared to those residing in households with main income coming from wages, those in households that rely primarily on pensions, social assistance, or remittances rate their welfare lower, holding expenditures constant. Better health as well as a higher level of education are also associated with higher perceived welfare. In terms of the attitudinal variables, we find that those who have not been affected by the recent financial crises (as per their own assessment) have a higher subjective assessment of welfare, while those who perceive that connections are necessary to get ahead in key aspects of life such as getting a government of private sector job, or university education, tend to perceive their current welfare position as lower. Perceptions of need in society as being mainly driven by injustice (laziness) are associated with lower (higher) subjective welfare (relative to bad luck being the main driver or need). Finally, it is notable that the R<sup>2</sup> also increases from 0.09 in the specification with only expenditures and household size to 0.26 in column (III) where individual characteristics and attitudinal variables are controlled for, although this improvement in the R<sup>2</sup> is much below that reported by Ravallion and Lokshin (2002) for Russia.

Other behavioral explanations, including differences in views on what constitutes poverty and wealth in a given country, or misreporting, with the reluctance to admit to poverty (wealth) by the poor (rich), can also be at play. We discuss in section 4 the possibility of frame of reference biases.

# **3.2. Satisfaction with life**

As described in section 2, two measures of overall life satisfaction are available in the LiTS. We discuss differences between the two measures in section 4, as an example of the role of framing in subjective welfare assessments. Averaged over the entire region, 53 percent of the adult population reported to be satisfied with life in 2010. This measure ranges from less than 20 percent in Romania and Hungary to 89 percent in Sweden. The share of the adult population satisfied with life is considerably lower in Eastern Europe and Central Asia than in Western European countries. With the exception of Italy, in all of these countries (Germany, France, Sweden, UK), more than 70 percent of the adult population are satisfied with life (only 50 percent in Italy). Using the alternative life satisfaction scale that ranges from 1 (completely dissatisfied) to 10 (completely satisfied), the mean level of life satisfaction in the region is 5.9 out of 10, which is broadly consistent with the 5-step Likert scale.

There is considerable evidence of a positive association between average life satisfaction and country income at any given point in time (Deaton, 2008). In Figure 3, we look at whether a similar gradient can be observed in the LiTS data for the two life satisfaction measures that are available.

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