2nd GDB of MGT-601

Q: Distinguish between Statistical Estimation and Hypothesis Testing?

Both estimation and testing are concerned with a parameter, which should be a meaningful
quantity. In statistics estimation refers to the process by which one makes inferences about a
population, based on information obtained from a sample.
Statisticians use sample statistics to estimate population parameters. For example, sample means
are used to estimate population means; sample proportions, to estimate population
proportions.An estimate of a population parameter may be expressed in two ways:

Point estimate. A point estimate of a population parameter is a single value of a statistic.

For example, the sample mean x is a point estimate of the population mean . Similarly,
the sample proportion p is a point estimate of the population proportion P.

Interval estimate. An interval estimate is defined by two numbers, between which a

population parameter is said to lie. For example, a < x < b is an interval estimate of the
population mean . It indicates that the population mean is greater than a but less than b.

A statistical hypothesis test is a method of statistical inference. Commonly, two statistical data
sets are compared, or a data set obtained by sampling is compared against a synthetic data set
from an idealized model. A hypothesis is proposed for the statistical relationship between the two
data sets, and this is compared as an alternative to an idealized null hypothesis that proposes no
relationship between two data sets. The comparison is deemed statistically significant if the
relationship between the data sets would be an unlikely realization of the null hypothesis
according to a threshold probabilitythe significance level. Hypothesis tests are used in
determining what outcomes of a study would lead to a rejection of the null hypothesis for a prespecified level of significance. The process of distinguishing between the null hypothesis and the
alternative hypothesis is aided by identifying two conceptual types of errors (type1 & type2) and
by specifying parametric limits on e.g. how much type 1 error will be permitted.
Statistical hypothesis tests define a procedure that controls (fixes) the probability of incorrectly
deciding that a default position (null hypothesis) is incorrect. The procedure is based on how
likely it would be for a set of observations to occur if the null hypothesis were true. Note that this
probability of making an incorrect decision is not the probability that the null hypothesis is true,
nor whether any specific alternative hypothesis is true. This contrasts with other possible
techniques of decision theory in which the null and alternative hypothesis are treated on a more
equal basis.