Accommodating Small Sample Sizes in Three-Level Models When the Third Level is Incidental

Small samples sizes are a pervasive problem when modeling clustered data. In two-level models, this problem has been well studied, and several resources provide guidance for modeling such data. However, a recent review of small-sample clustered data methods has noted that no studies have investigated methods for modeling three-level data with small sample sizes. Furthermore, strategies for two-level models do not necessarily translate to the three-level context. Moreover, three-level models are prone to small samples because the "small sample" designation is primarily based on the sample size of the highest level, and large samples are increasingly difficult to amass as one progresses up a hierarchy. In this study, we focus on the case when the third level is incidental, meaning that the third level is important to consider but there are no explicit research questions at the third level. This study performs a simulation study to examine the performance of seven methods for modeling three-level data with a small sample at the third level. A motivating educational psychology example is also provided to demonstrate how the choice of method can greatly affect results.