ECON1203: Statistics Chapter 10: Introduction to Estimation

ECON1203: Statistics
Chapter 10: Introduction to Estimation
1. Introduction

Chapter 4 discussed descriptive statistics.

Chapter 7 & 8 discussed probability distributions.
Chapter 9 discussed sampling distributions.
Chapter 1 defined statistical inference as the process by which we
acquired information and draw conclusions about populations from
samples.
There are two procedures for making inferences: (1) estimation, and (2)
hypothesis testing.
Chapter 10 (this chapter) introduces estimation.
Chapter 11 introduces hypothesis testing.

2. Concepts of Estimation

The objective of estimation is to approximate a population parameter

from a sample statistic.
The sample mean can be used to estimate the population mean.
o The sample mean is the estimator.
o The population mean is the estimate.

a. Point and Interval Estimators

A point estimator draws inferences about a population by estimating the

value of an unknown parameter using a single value or point.
The point estimator has three drawbacks:
o (1) The estimate will almost certainly be wrong because the
probability that a continuous random variable will equal a specific
value is 0.
o (2) We often need to know how close the estimator is to the
parameter.
o (3) Increasing the sample size improves the accuracy. However, a
point estimator cannot reflect larger sample sizes.
An interval estimator draws inferences about a population by estimating
the value of an unknown parameter using an interval.
An unbiased estimator of a population parameter is an estimator whose
expected value is equal to that parameter

[Sample mean ( X )=Population mean ( ) ].

ECON1203: Statistics Chapter 10: Introduction to Estimation

An unbiased estimator is said to be consistent if the difference between

the estimator and the parameter grows smaller as the sample size grows

n
[ As Sample () , Sample variance ( 2 n ) 0 ] .

larger

If there are two unbiased estimators of a parameter, the one whose

variance is smaller is said to have relative efficiency.

3. Estimating the Population Mean when the

Population Standard Deviation is Known

The central limit theorem states that:

If

is normally distributed, then

If

is nonnormally distributed, then

normally distributed if

If

X
o

From

is approximately

is sufficiently large.

is normally distributed:
Then

Z=

P Z 2 <

X
n

is also normally distributed (or approximately so).

X
<Z
=1 , we can derive the following:
n 2

+Z 2 =1
P X Z 2 < < X
n
n

Confidence interval estimator of =x z 2

Confidence level=1

Lower confidence limit ( LCL )=x z 2

Upper confidence limit (UCL )=x + z 2

is normally distributed.

, x + z 2 =x z 2
n
n
n

Because the confidence level is the probability that the interval

includes the actual value of
( .90,.95, .98,.99 .

, we generally set

close to 1

ECON1203: Statistics Chapter 10: Introduction to Estimation

a. Interpreting the Confidence Interval Estimate

The confidence level applies to our estimation procedure and not to any
one interval.

b. Information and the Width of the Interval

Increasing the confidence level widens the interval.

Decreasing the confidence level narrows the interval.
95% confidence is considered standard.

c. Estimating the Population Mean Using the

Sample Median

Sample median is not as accurate as sample mean in estimating

population mean because sample median ignores is more concerned
about the order than the average.

4. Selecting the Sample Size

If the interval estimate is too wide, it provide little information.

a. Error of Estimation

Sampling error is the difference between the sample and the population
that exists only because of the observations that happened to be selected
for the sample.
Sampling error is the difference between the estimator and the
parameter.
Sampling error is also called error of estimation.

Sampling error=Error of estimation=|X |

Maximum error of estimation :|X |< Z 2

n

Bound on theerror of estimation=B=Z 2

b. Determining the Sample Size

z 2 2
n=
[ roundingup n]
B

ECON1203: Statistics Chapter 10: Introduction to Estimation

5. Summary
Symbols

Confidence level=1

Bound on theerror of estimation=B

Value of Z such that thearea its equal =z

2
2

Formulas

Confidence interval estimator of with known=x z

2

Sample estimate =n=

( )
2