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Language: en

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In a typical research paper that 
uses multiple regression analysis,

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we do many different regression models.

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And the reason for that is that

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we want to do model comparisons.

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Now we will take a look at,

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why we compare models and how we do that?

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In Hekman's paper,

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which is our example for this video,

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we will be focusing on their first study.

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So they say that they used hierarchical 
moderated regression analysis.

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So what does that mean?

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The hierarchical here is the key term,

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it simply means that you're 
estimating multiple models.

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Start with a simple one then add more variables,

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compare, add more variables and compare.

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The moderated part here means that

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they have interaction terms in their model.

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They could just as well have said that

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they used regression analysis,

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because we use regression analysis nearly always

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in a hierarchical way.

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And it's obvious based on 
the regression results that

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they contain interaction terms.

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So this is a bit unnecessary, 
complicated way of saying,

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we did regression, we estimated multiple models.

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Now let's look at the actual models,

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and the modeling results,

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and the logic for multiple model comparisons.

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They say that they entered in the first model,

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they have the control variables only here.

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And in the second model, they included 
some of the interesting variables.

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So we'll be focusing on the first two models,

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Model 1 and Model 2.

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Model 1 has control variables only,

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Model 2 is controls and 
some interesting variables.

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The logic in model comparison,

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when we do that kind of comparison,

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is to ask the question,

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do the interesting variables 
and the controls together

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explain the dependent variable 
more than the controls only.

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If the control variables and the 
interesting variables together

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don't explain the data more 
than the controls only,

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then we conclude that the interesting 
variables are not very useful in

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explaining the dependent variable,

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and we can conclude that they 
don't really have an effect.

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How we do a model comparison is that 
we compare the R-squared statistic.

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So here they have the adjusted 
R-squared and the actual R-squared.

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The model comparison,

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if we just want to assess the magnitude,

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how much better the Model 2 is?

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In small samples, the more appropriate 
statistic is the adjusted R-squared.

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However, the adjusted R-squared statistic 
doesn't really have a well-known test.

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So instead of looking at the adjusted R-squared,

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we test the R-squared difference.

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They present the R-squared difference here.

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So this is the difference between the first 
model R-squared and the second model R-squared,

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and they have some stars here.

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So the important question is,

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does the second model explain the 
data better than the first model?

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The adjusted R-squared difference is 4,

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the actual R-squared difference is 7 or 0.07 %,

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so the interesting variables explain the data 
a bit more than the control variable only.

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Now we will be focusing on 
these test statistics here.

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So where do these stars come from?

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These stars come from an F test that

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tests the null hypothesis that

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all the regression coefficients for 
every variable added to this model are zero.

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We look at the logic of the test now.

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So the idea of the F test 
between the first two models is

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that it is a nested model comparison test.

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So one model is nested in another,

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that means that one model is 
a special case of another.

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So in this case Model 2 is the 
unrestricted model or unconstraint model,

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Model 1 is the restricted 
model or constraint model.

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So, why can we say that Model 1 is a special 
case of a more general model, Model 2?

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The reason is that Model 1,

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which leaves out these variables,

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is the same model as Model 2,

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except that the effects of these 
variables are constrained to be zero.

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So by leaving out variables,

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we constrain the regression coefficient 
of that variable to be zero.

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And that's the reason,

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why we say that this model is a 
constrained version of that model here.

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The effects of the last three 
variables are freely estimated,

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here they are constrained to be 0.

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So how do we test these differences,

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whether the difference in R-squared is more 
than what we can expect by a chance of only?

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Remember that every time we 
add something to the model,

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the R-squared can only go up.

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It can stay the same or go up,

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typically it goes up.

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So is that increase in R-squared 
statistically significant?

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To answer that question,

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we do the t test.

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And let's do a t test by hand now.

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We need to first have the degrees 
of freedom for the first two models,

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to do the F test.

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The degrees of freedom for the regression model is

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n, the sample size, minus k, the 
number of estimated parameters,

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or regression coefficients, or 
number of variables in the model,

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minus 1 for the intercept.

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So we have a sample that provides 
us with 113 units of information,

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we estimate for the first model,

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effects of 15 variables,

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we estimate the intercept,

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so we have 97 degrees of freedom 
remaining for the restricted model.

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In the unrestricted model, we 
estimate three more things,

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so it's 113 - 18 - 1 = 94 degrees of freedom,

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for that model.

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So these degrees of freedom 
calculations are pretty simple,

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it's just basic subtraction.

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Now we need to have an F statistic as well.

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And the F statistic can be are 
defined based on the R-squared values.

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So it's the R-squared difference divided 
by the degrees of freedom difference,

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divided by that thing there.

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So that's the F statistic,

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your econometrics textbook will explain,

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where that comes from.

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But importantly we are here interested in,

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how much the R-squared increases 
per the degrees of freedom consumed,

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when we estimate the model.

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Quite often we compare increased 
explanation against increased complexity,

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that's a fairly general comparison,

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which we use in multiple different tests.

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So we do that,

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we plug in the numbers,

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we get the result of 3.22.

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We compare that against the proper F distribution,

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we get a p-value of 0.026,

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which has one significance star.

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So they presented two stars,

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The reason, I have no idea,

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but I've done this example in multiple classes,

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over multiple years and I don't 
know why this is different.

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It could be that there's a typo in the paper,

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or it could be, that's probably the case,

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because this kind of difference,

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getting that because of rounding error 
in the R-squared is quite unlikely.

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So that's the idea of F test,

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you take a constraint model,

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and you take an unconstraint model,

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you calculate the difference per 
the degrees of freedom difference,

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you scale it with this thing,

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and then you will get a test statistic that 
you compare against the F distribution.

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In more complicated models

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for which we don't know, how 
they behave in small samples,

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we use the chi-square distribution 
instead of the F distribution.

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But the principle is the same.

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In practice, your software will 
do the calculation for you,

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but it is useful to understand that 
these calculations are not complicated,

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and have a little bit of understanding 
of the logic behind the calculations.