4-13 Tests of Non-nested Hypotheses There are 4 possible outcomes when model 3 is estimated: n is significant but y is not, model 1 y3 is significant but n is not, model 2 n and y3 are both statistically significant, Model 3 Neither n nor ya are significant, none; other method Problems with encompassing approach Hybrid model may be meaningless Possible high correlation between x, and x34-13 Tests of Non-nested Hypotheses • There are 4 possible outcomes when Model 3 is estimated: –  2 is significant but  3 is not，model 1 –  3 is significant but  2 is not, model 2 –  2 and  3 are both statistically significant, Model 3 – Neither  2 nor  3 are significant, none; other method • Problems with encompassing approach – Hybrid model may be meaningless – Possible high correlation between x2 and x3