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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
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Estimation
• Estimation – A process whereby we
select a random sample from a
population and use a sample statistic to
estimate a population parameter.
Estimators & Estimates
Estimators are the random variables used to
estimate population parameters, while the specific
values of these variables are the estimates.
Example: the estimator of is often
n
X i
X i 1
n
but if the observed values of X are 1, 2, 3, and 6,
the estimate is 3.
So the estimator is a formula; the estimate is a
number.
Point and Interval
Estimation
• Point Estimate – A sample statistic used
to estimate the exact value of a population
parameter
Point and Interval
Estimation
• Confidence interval (interval estimate) –
A range of values defined by the
confidence level within which the
population parameter is estimated to fall.
• Confidence Level – The likelihood,
expressed as a percentage or a
probability, that a specified interval will
contain the population parameter.
Point and Interval Estimates
Lower Upper
Confidence Confidence
Point Estimate Limit
Limit
Width of
confidence interval
Confidence Levels:
• Confidence Level – The likelihood, expressed
as a percentage or a probability, that a specified
interval will contain the population parameter.
– 95% confidence level – there is a .95 probability
that a specified interval DOES contain the
population mean. In other words, there are 5
chances out of 100 (or 1 chance out of 20) that
the interval DOES NOT contain the population
mean.
– 99% confidence level – there is 1 chance out of
100 that the interval DOES NOT contain the
population mean.
Point Estimators versus Interval
Estimators
Up until now we have considered point
estimators that provide us with a single
value as an estimate of a desired parameter.
It is unlikely, however, that our estimate will
precisely equal our parameter.
We, therefore, may prefer to report
something like this: We are 95% certain that
the parameter is between “a” and “b.”
This statement is a confidence interval.
Building a
Confidence Interval 0.9750
0.0250
-1.96 0 1.96 Z
We know that Pr(Z < 1.96) = 0.9750
Then Pr(-1.96 < Z < 1.96) = 0.95
X-
We also know that is distributed as a standard normal (Z).
n
X-
So there is a 95% probability that - 1.96 1.96
n
X-
Continuing from: with 95% probability, - 1.96 1.96
n
- 1.96 X - 1.96
Multiplying through by , n n
n
Subtracting off X , - X - 1.96 - -X 1.96
n n
Multiplying by -1 and flipping the X 1.96 X - 1.96
n n
inequalities appropriately,
X - 1.96 X 1.96
Flipping the entire expression, n n
So we have a 95% Confidence Interval
for the Population Mean
X - 1.96 X 1.96
n n
Example: Suppose a sample of 25 students at a
university has a sample mean IQ of 127. If the
population standard deviation is 5.4, calculate the
95% confidence interval for the population mean.
X - 1.96 X 1.96
n n
5.4 5.4
127 - 1.96 127 1.96
25 25
X - Z X Z
n n
Interval Estimate of a Population Mean:
Known
• Interval Estimate of
x z /2
n
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