Questions tagged [nested-models]

I have two models for prospect theory utility functions and want to compare their fits. However, I'm not sure if the models are nested or not. The first model is given by: $U(x) = x^α$ for $x ≥ 0$ and $U(y) = −λ|y|^α$ for $y < 0$ The second model…

Let's say I have a model like A = α0 + α1*B + α2*C + α3*D + ϵ (Model 1) Then I can estimate it's nested models A = α0 + α1*B + α2*C + ϵ (Model 2) or, say, A = α0 + α1*B + ϵ (Model 3) If models 2 and 3 are nested models of model 1, what is model…