Quantitative Methods 2011

Estimation

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Overview
Point and interval estimation Confidence intervals Interval estimates of means and proportions Interval estimates using t-distribution Sample size calculations

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Motivation
x3
x1 x2 x4

Where is likely to be?

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Point and Interval Estimates

Point estimate
A single number (calculated from a sample) to estimate an unknown population parameter. Shortcoming is that the estimate is either right or wrong . If wrong, how much wrong? Needs to be accompanied by an estimate of error.

Interval estimate
A range of stated length within which the unknown population parameter may lie with stated probability.
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Estimator and Estimates

Estimator
An sample statistic that is used to estimate a population parameter
Eg: Sample average is an estimator for population mean

Estimate
A specific calculated value of a statistic
Eg: If I want to know the mean weight of IBS-M students, and take a sample of 30 students, and compute the average weight as 62 kg, then 62 kg is an estimate of the mean weight of IBS-M students.
Another sample may give 58.7 kg. Then 58.7 is another estimate of the weight of IBS-M students.
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What Is A Good Estimator

Unbiasedness
Mean of Estimators distribution must equal the parameter it is to estimate
Estimator 1 (Bad) Estimator 2 (Good)

Value of parameter to be estimated QM 2011 - Transcend

What Is A Good Estimator

Efficiency
Smaller the standard error of the estimate, more efficient the estimator
Estimator 2 Efficient Estimator 1

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What Is A Good Estimator

Consistency
As sample size increases, the value of the statistic gets closer and closer to the parameter.

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What Is A Good Estimator

Sufficiency
No other estimator can extract more information from a given sample.

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Point Estimates
For population mean ,
it is sample mean

x x
n
2

2 For population variance (x it is sample variance s

x) 2

For population proportion p

It is sample proportion p

n 1

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Interval Estimates
When we compute an x we can ask how far could be? For that we need to know std error of x We generate intervals around x of a certain number of standard errors, and declare that some (hopefully high) percent of such intervals will contain That percentage is the probability associated with such intervals, and is known as level of confidence.
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Graphical Interpretation Of Intervals

x1

x3
x2 x4

1 around x1 1 around x 2 1 around x3 1 around x 4

68% Confidence Level

68% intervals will cover

Notice that larger the interval, greater the confidence level 2 around x1 2 around x 2 95.5% Confidence Level
95.5% intervals will cover
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2 around x3
2 around x 4

Most Commonly Used Confidence Levels

90% 95% 99% 1.64 standard errors 1.96 standard errors 2.58 standard errors

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How To Use Normal Table For Confidence Interval

See what confidence level (CL) you require.
(100 CL) will be the total probability required in the tails. (Ex: CL = 95%, total probability reqd in tails = 5%). Use appropriate z-value.

Compute std error of means.

If pop std dev is given: x If only sample std dev is given: n
s sx If, further, population is finite, use FPC: n
sx

Then CI is:

x ( proper z ) * ( proper std dev )

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s n

N n N 1

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Example For Confidence Interval

(Population std dev known, sample size large) A supplier of car wiper blades did life-tests on a random sample of 100 blades from his production line. The sample mean was 21 months. From previous studies he knew that the population standard deviation was 6 months. What is the 95% confidence interval on the sample mean
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Solution For Wiper Blade Example

Given: x = 21 = 6 n = 100 The standard error of the mean of samples of 6 6 0.6 size 100 = n 100 10 For 95% confidence, we use z = 1.96 So confidence interval is x 1.96 x 21 1.96(0.6) 22.18 and 19.82
x

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Example For Confidence Interval

(Population std dev unknown, population finite) CRY took a random sample of 50 families in the Bhatwadi section where 700 families reside, and found that the mean monthly income of the sample was Rs.11,800, with a standard deviation of Rs.950. What is the 90% confidence interval for the mean monthly income of all the 700 families in Bhatwadi?
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Solution For CRY Example

Given: x = 11800 s = 950 n = 50 N = 700 Since is unknown, use s as an estimate of Then, we can only get s x , not x Also since n/N > 0.05, we will have to use finitepopulation-correction. Thus, s s N n 950 700 50 134.37(0.9643) 129.57
x

N 1

50

700 1

For 90% confidence, we use 1.64 Confidence interval is: 11800 1.64(129.57) = 12012.50 and 11587.50
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Calculating Sample Size For A Given CI

(Population Std Dev Known) Sometimes we are given a CI and a CL and asked to find an n that will do the job.
See what is the half-width of the CI and what is z x = half-width the CL. Set Choose z from Normal table as per CL z halfwidth x But . So n n Solve for n.

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Example For Sample Size Calculation

Take previous example of car wiper blades What should be the sample size for a 95% CI of 1.0 month?

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Solution For Sample Size Problem

Given half-width = 1 month, and = 6 months We must have z x 1 6 For 95% CL, z = 1.96, and n n 6 1.96 1 So n Solving for n, we get n = (1.96x6)2 = 11.762 = 139 What was the previous half-width and sample size? (1.18 months and 100)
x

Moral of the story: If you want smaller interval width (same confidence level), you have to increase sample size.
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Interval Estimates
(Population std dev unknown, sample size small)
When sample sizes are < 30, and population std dev is un-known, sampling distribution of means is NOT Normal, and Normal tables cannot be used. Appropriate distribution is t-distribution
General shape is similar to Normal. There is no standard t-distribution (like std Normal)
There are different t-distributions for different sample sizes

Tables give
Symmetrical t-values for few commonly used outside (tail) probabilities.

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What A t-Table Looks Like (FAT Book, p 104)

EXTRACT FROM t-DISTRIBUTION Df Total 2-Tail Probabilities 0.10 0.05 0.02 0.01 (90%) (95%) (98%) (99%) 6.314 2.92 2.353 2.132 1.943 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

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How To Use t-Tables For Confidence Intervals

See what confidence level (CL) you require.
(100 CL) will be the total probability required in the tails. (Ex: CL = 95%, total probability reqd in tails = 5%)

See what sample size is.

(Sample size 1) is the degrees of freedom (df)

Select the row corresponding to your df. Go across to the column corresponding to your total tail-probability Read off t-value to use in the confidence interval formula.
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Example For Confidence Interval

(Population std dev unknown, sample size small) The plant manager at Tata Power in Chembur wants to estimate average coal usage in a week for the coming year. He took a random sample of 10 weeks, and found the average weekly consumption was 11,400 tons. The standard deviation of the sample was 700 tons. Construct a 95% confidence interval on the mean weekly coal consumption.
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Solution For Tata Power Example

Given: x = 11,400 tons s = 700 tons n = 10 weeks CL = 95%

Since sample is less than 30, we use t-table with df = 9 . We look for total 2-tail probability = 0.05, and find t = 2.262 s 700 sx 221 .38 We calculate n 10 Thus, 95% CI is: 11400 2.262(221.38) = 11,901 and 10,899
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Confidence Intervals On Proportions

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About Proportions
Proportions (fractions) of various items in populations are of interest in many practical situations.
Ex: proportion un-employed, proportion of college graduates, etc.

There is p of a population, which is estimated by p of a sample. We can construct confidence intervals on p

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How To Use Sampling Distn Of p

We note sampling distn of p is almost Normal Mean of sampling distribution of p , p = p. Std deviation of sampling dist of p , p = pq n We estimate p by p pq We estimate p by n So to construct confidence interval we do usual sample mean z std devs
z is chosen to suit confidence level required
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Example For CI For p

Survey was done to see how many employees have their own retirement plan (not companys). Sample of 75 was taken and it was found that 40% had their own plans. Develop 99% confidence interval for the true (population) proportion having their own plan.
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Solution To Retirement Plan Problem

Given: n = 75, pq = Then
n

= 0.4 CL = 99%. 0 .4 ( 0 . 6 ) = 0.057 75

p

For 99% confidence, z = 2.58 --- from Normal table. pq p z CI is: n = 0.4 2.58(0.057) = 0.547 and 0.253
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End Of Session Estimation

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