Estimation

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

• A point estimate is a single number,

• a confidence interval provides additional
information about the variability of the estimate

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 
   

127 - 2.12    127  2.12

124 .88    129.12
We are 95% certain that the population mean is between 124.88 & 129.12 .
 What if we want a confidence level
other than 95%?
In our formula, the 1.96 came from our the fact that the Z distribution will
be between -1.96 and 1.96 95% of the time.
     
X - 1.96      X  1.96  
 n   n
   
To get a different confidence level, all we need to do is find the Z values
such that we are between them the desired percent of the time.
Using that Z value, we have the general formula for the
confidence interval for the population mean  :

     
X - Z      X  Z  
 n   n 
   
 Interval Estimate of a Population Mean:
 Known
• Interval Estimate of

x  z /2
n

where X is the point estimate

Zα/2 is the normal distribution critical value
for a probability of /2 in each tail
σ/ n is the standard error
 General Formula
DCOVA
• The general formula for all confidence
intervals is:
Point Estimate ± (Critical Value)(Standard Error)
Where:
• Point Estimate is the sample statistic estimating the
population parameter of interest

• Critical Value is a table value based on the sampling

distribution of the point estimate and the desired confidence
level

• Standard Error is the standard deviation of the point estimate

Let’s redo the IQ example with a different confidence level.

We had a sample of 25 students with a sample mean IQ

of 127. The population standard deviation was 5.4 .
Calculate the 99% confidence interval for the population
mean.
     
Our general formula is: X - Z 
 n
    X  Z  
 n 
   

We said that the Z value for 99% confidence is 2.575.

Putting in our values,
 5.4   
127 - 2.575      127  2.575  5.4 
 25   25 
   

or 124.22 <  < 129.78

We had for the 95% confidence interval:
124.88 <  < 129.12
We just got for the 99% confidence interval:
124.22 <  < 129.78
The 99% confidence interval starts a little
lower & ends a little higher than the 95%
interval.
So the 99% interval is wider than the 95%
interval.
• 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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