Chapter 10

Introduction to Estimation

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.1

Estimation
Therearetwotypesofinference:estimationandhypothesis
testing;estimationisintroducedfirst.
Theobjectiveofestimationistodeterminetheapproximate
valueofapopulationparameteronthebasisofasample
statistic.
E.g.,thesamplemean()isemployedtoestimatethe
populationmean().

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.2

Estimation
Theobjectiveofestimationistodeterminetheapproximate
valueofapopulationparameteronthebasisofasample
statistic.
Therearetwotypesofestimators:
PointEstimator
IntervalEstimator

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.3

Point Estimator
Apointestimatordrawsinferencesaboutapopulationby
estimatingthevalueofanunknownparameterusingasingle
valueorpoint.

Wesawearlierthatpointprobabilitiesincontinuous
distributionswerevirtuallyzero.Likewise,wedexpectthat
thepointestimatorgetsclosertotheparametervaluewithan
increasedsamplesize,butpointestimatorsdontreflectthe
effectsoflargersamplesizes.Hencewewillemploythe
intervalestimatortoestimatepopulationparameters
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.4

Interval Estimator
Anintervalestimatordrawsinferencesaboutapopulation
byestimatingthevalueofanunknownparameterusingan
interval.

Thatiswesay(withsome___%certainty)thatthe
populationparameterofinterestisbetweensomelowerand
upperbounds.

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.5

Point & Interval Estimation

Forexample,supposewewanttoestimatethemeansummer
incomeofaclassofbusinessstudents.Forn=25students,
iscalculatedtobe400$/week.

pointestimate intervalestimate

Analternativestatementis:
Themeanincomeisbetween380and420$/week.
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.6

Qualities of EstimatorsStatisticians have already

determined the best way to estimate a population
parameter.

Qualitiesdesirableinestimatorsincludeunbiasedness,
consistency,andrelativeefficiency:
Anunbiasedestimatorofapopulationparameterisan
estimatorwhoseexpectedvalueisequaltothatparameter.
Anunbiasedestimatorissaidtobeconsistentifthe
differencebetweentheestimatorandtheparametergrows
smallerasthesamplesizegrowslarger.
Iftherearetwounbiasedestimatorsofaparameter,the
onewhosevarianceissmallerissaidtoberelatively
efficient.

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.7

Confidence Interval Estimator for

Theprobability1iscalledtheconfidencelevel.
Usually
represented with
a plus/minus
( ) sign

upper confidence
limit (UCL)

lower confidence
limit (LCL)

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.8

Graphically
theactuallocationofthepopulationmean

may be here

or here

or possibly even
here

Thepopulationmeanisafixedbutunknownquantity.Itsincorrecttointerpretthe
confidenceintervalestimateasaprobabilitystatementabout.Theintervalactsasthe
lowerandupperlimitsoftheintervalestimateofthepopulationmean.
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.9

Four commonly used confidence

levels
ConfidenceLevel

cut & keep handy!

Table 10.1
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.10

Example 10.1
Acomputercompanysamplesdemandduringleadtimeover
25timeperiods:
235
421
394
261
386

374
361
439
374
316

309
514
348
302
296

499
462
344
466
332

253
369
330
535
334

Itsisknownthatthestandarddeviationofdemandoverlead
timeis75computers.Wewanttoestimatethemeandemand
overleadtimewith95%confidenceinordertosetinventory
levels

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.11

Example 10.1
Wewanttoestimatethemeandemandoverleadtimewith
95%confidenceinordertosetinventorylevels
IDENTIFY

Thus,theparametertobeestimatedisthepopnmean:
Andsoourconfidenceintervalestimatorwillbe:

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.12

Example 10.1

CALCULATE

Inordertouseourconfidenceintervalestimator,weneedthe
followingpiecesofdata:
Calculatedfromthedata
370.16
1.96
75

25

Given

therefore:
Thelowerandupperconfidencelimitsare340.76and399.56.
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.13

Interval Width
Awideintervalprovideslittleinformation.
Forexample,supposeweestimatewith95%confidencethat
anaccountantsaveragestartingsalaryisbetween$15,000
and$100,000.
Contrastthiswith:a95%confidenceintervalestimateof
startingsalariesbetween$42,000and$45,000.
Thesecondestimateismuchnarrower,providingaccounting
studentsmorepreciseinformationaboutstartingsalaries.

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.14

Interval Width
Thewidthoftheconfidenceintervalestimateisafunctionof
theconfidencelevel,thepopulationstandarddeviation,and
thesamplesize

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.15

Interval Width
Thewidthoftheconfidenceintervalestimateisafunctionof
theconfidencelevel,thepopulationstandarddeviation,and
thesamplesize

Alargerconfidencelevel
producesawider
confidenceinterval:
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.16

Interval Width
Thewidthoftheconfidenceintervalestimateisafunctionof
theconfidencelevel,thepopulationstandarddeviation,and
thesamplesize

Largervaluesof
producewider
confidenceintervals
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.17

Interval Width
Thewidthoftheconfidenceintervalestimateisafunctionof
theconfidencelevel,thepopulationstandarddeviation,and
thesamplesize

Increasingthesamplesizedecreasesthewidthofthe
confidenceintervalwhiletheconfidencelevelcanremain
unchanged.
Note:thisalsoincreasesthecostofobtainingadditionaldata
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.18

Selecting the Sample Size

Wecancontrolthewidthoftheintervalbydeterminingthe
samplesizenecessarytoproducenarrowintervals.
Supposewewanttoestimatethemeandemandtowithin5
units;i.e.wewanttotheintervalestimatetobe:
Since:
Itfollowsthat
Solveforntogetrequisitesamplesize!
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.19

Selecting the Sample Size

Solvingtheequation

thatis,toproducea95%confidenceintervalestimateofthe
mean(5units),weneedtosample865leadtimeperiods
(vs.the25datapointswehavecurrently).

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.20

Sample Size to Estimate a Mean

Thegeneralformulaforthesamplesizeneededtoestimatea
populationmeanwithanintervalestimateof:

Requiresasamplesizeofatleastthislarge:

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.21

Example 10.2
Alumbercompanymustestimatethemeandiameteroftrees
todeterminewhetherornotthereissufficientlumberto
harvestanareaofforest.Theyneedtoestimatethistowithin
1inchataconfidencelevelof99%.Thetreediametersare
normallydistributedwithastandarddeviationof6inches.
Howmanytreesneedtobesampled?

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.22

Example 10.2
Thingsweknow:
Confidencelevel=99%,therefore=.01

Wewant,henceW=1.
1
Wearegiventhat=6.
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.23

Example 10.2
Wecompute

Thatis,wewillneedtosampleatleast239treestohavea
99%confidenceintervalof
1

Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.

10.24