Introduction to Estimation

1
 10.1 Introduction

 Statistical inference is the process by which we

acquire information about populations from
samples.
 There are two types of inference:
 Estimation
 Hypotheses testing

2
 10.2 Concepts of Estimation
The objective of estimation is to determine the value
of a population parameter on the basis of a sample
statistic.
There are two types of estimators:
Point Estimator
Interval estimator

3
 Point Estimator
A point estimator draws inference about a
population by estimating the value of an
unknown parameter using a single value
or point.

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 Point Estimator
A point estimator draws inference about a
population by estimating the value of an
unknown parameter using a single value
or point.
Parameter
Population distribution

Sampling distribution

5 Point estimator
 Interval Estimator
An interval estimator draws inferences
about a population by estimating the value
of an unknown parameter using an
interval.
Population distribution Parameter

Sample distribution

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Interval estimator
 Estimator’s Characteristics
Selecting the right sample statistic to estimate a
parameter value depends on the characteristics of the
statistic.
Estimator’s desirable characteristics:
Unbiasedness: An unbiased estimator is one whose
expected value is equal to the parameter it estimates.
Consistency: An unbiased estimator is said to be
consistent if the difference between the estimator and
the parameter grows smaller as the sample size
increases.
Relative efficiency: For two unbiased estimators, the one
with a smaller variance is said to be relatively efficient.
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 10.3 Estimating the Population Mean
when the Population Variance is Known
How is an interval estimator produced from a sampling
distribution?
A sample of size n is drawn from the population, and its
mean is calculated.
x
By the central limit theorem xis normally distributed
(or approximately normally distributed.), thus…

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 10.3 Estimating the Population Mean
when the Population Variance is Known

x 
Z
 n
We have established before that

 
P(  z  2  x    z 2 )  1 
n n
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 The Confidence Interval for  (  is known)
This leads to the following
equivalent statement

 
P( x  z  2    x  z 2 )  1 
n n

The confidence interval

10
 Interpreting the Confidence Interval for 

 of
11 ––  of all
all the
the values
values of
of x obtained
obtained inin repeated
repeated
sampling from
sampling from aa given
given distribution,
distribution, construct
construct an
an interval
interval
   
x  z 2 n , x  z 2 n 
 
that includes
that includes (covers)
(covers) the
the expected
expected value
value of
of the
the
population.
population.
11
 Graphical Demonstration of the Confidence
Interval for 

Confidence level

1-

 
x  z 2 x x  z 2
n n

Lower confidence limit  Upper confidence limit

2z  2
n
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 The Confidence Interval for  (  is known)
Four commonly used confidence levels

Confidence
Confidence
level
level  
 z
0.90
0.90 0.10
0.10 0.05
0.05 1.645
1.645
0.95
0.95 0.05
0.05 0.025
0.025 1.96
1.96
0.98
0.98 0.02
0.02 0.01
0.01 2.33
2.33
0.99
0.99 0.01
0.01 0.005
0.005 2.575
2.575

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 The Confidence Interval for  (  is known)
• Example: Estimate the mean value of the distribution resulting from
the throw of a fair die. It is known that  = 1.71. Use a 90%
confidence level, and 100 repeated throws of the die

•Solution: The confidence interval is

 1.71
x  z 2  x  1.645  x  .28
n 100
The mean values obtained in repeated draws of samples of size
100 result in interval estimators of the form
[sample mean - .28, Sample mean + .28],
90% of which cover the real mean of the distribution.
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 The Confidence Interval for  (  is known)
• Recalculate the confidence interval for 95% confidence level.
 1.71
• Solution: x  z  2  x  1.96  x  .34
n 100

.95
.90
x  .28 x  .28
x  .34 x  .34
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 The Confidence Interval for  (  is known)

•• The
The width
width of
of the
the 90%
90% confidence
confidence interval
interval == 2(.28)
2(.28) == .56
.56
The width
The width of
of the
the 95%
95% confidence
confidence interval
interval == 2(.34)
2(.34) == .68
.68

•• Because
Because thethe 95%
95% confidence
confidence interval
interval isis wider,
wider, itit isis
more likely
more likely to
to include
include the
the value
value of 
of 

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 The Confidence Interval for  (  is known)
Example 10.1
Doll Computer Company delivers computers directly to its
customers who order via the Internet.
To reduce inventory costs in its warehouses Doll employs
an inventory model, that requires the estimate of the mean
demand during lead time.
It is found that lead time demand is normally distributed
with a standard deviation of 75 computers per lead time.
Estimate the lead time demand with 95% confidence.

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 The Confidence
Example Interval
10.1 – Solution
for  (  is known)
The parameter to be estimated is the mean demand
during lead time.
We need to compute the interval estimation for 
From the data provided in file Xm10-01, the sample
mean is

x  370.16.
 75 Since 1 -  =.95,  = .05.
x  z 2  370.16  z .025 Thus /2 = .025. Z.025 = 1.96
n 25
75
 370.16  1.96  370.16  29.40   340.76, 399.56
18 25
 The Confidence Interval for  (  is known)
Using Excel

Tools > Data Analysis Plus > Z Estimate: Mean

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 Information and the Width of the Interval
Wide interval estimator provides little information.

Where is 
??????????????????????????????

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 Information and the Width of the Interval
Wide interval estimator provides little information.

Where is 

Ahaaa!
Here is a much narrower interval.
If the confidence level remains
unchanged, the narrower interval
provides more meaningful
information.

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 The Width of the Confidence Interval

The width of the confidence interval is

affected by
• the population standard deviation ()
• the confidence level (1-)
• the sample size (n).

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 The Affects of  on the interval width

/2 = .05 /2 = .05

90%

Confidence level

 
2z.05  2(1.645)
n n Suppose the standard
deviation has increased
1.5 1.5
2z .05  2(1.645) by 50%.
n n

Tomaintain
To maintainaacertain
certainlevel
levelofofconfidence,
confidence,aalarger
larger
standarddeviation
standard deviationrequires
requiresaalarger
largerconfidence
confidenceinterval.
interval.
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The Affects of Changing the Confidence Level

/2 = 5% /2 = 5%
/2 = 2.5% /2 = 2.5%
Confidence level
90%
95%

 
2z .05  2(1.645)
n n Let us increase the
confidence level
  from 90% to 95%.
2z .025  2(1.96)
n n

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Largerconfidence
Larger confidencelevel
levelproduces
producesaawider
widerconfidence
confidenceinterval
interval
 The Affects of Changing the Sample Size

90%

Confidence level

 
2z .05  2(1.645)
n n

Increasingthe
Increasing thesample
samplesize
sizedecreases
decreasesthe
thewidth
widthofofthe
the
confidenceinterval
confidence intervalwhile
whilethe
theconfidence
confidencelevel
levelcan
canremain
remain
unchanged.
unchanged.
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 * Selecting the Sample size

We can control the width of the confidence interval

by changing the sample size.
Thus, we determine the interval width first, and
derive the required sample size.
The phrase “estimate the mean to within W units”,
translates to an interval estimate of the form

xx  ww
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 * Selecting the Sample size
The required sample size to estimate the mean is

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zz22
nn  
 ww 
Click to see how the formula is developed.
Here

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 Selecting the Sample size

Example 10.2
To estimate the amount of lumber that can be
harvested in a tract of land, the mean diameter
of trees in the tract must be estimated to within
one inch with 99% confidence.
What sample size should be taken? Assume
that diameters are normally distributed with 
= 6 inches.
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 Selecting the Sample size
Solution
The estimate accuracy is +/-1 inch. That is w = 1.
The confidence level 99% leads to  = .01, thus z/2 =
z.005 = 2.575.
We compute 2 2
z 
  2   2.575(6) 
n     239
 w   1 
IfIf the
the standard
standard deviation
deviation isis really
really 66 inches,
inches,
the interval
the interval resulting
resulting from
from the the random
random sampling
sampling
will be
will be of
of the
the form
form x  1.. IfIf the
the standard
standard deviation
deviation
isis greater
greater than
than 66 inches
inches the
the actual
actual interval
interval will
will
29 be wider
be wider than
than +/-1.
+/-1.