Quantitative Methods 2011

8


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
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Where is likely to be?
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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Estimator 2 (Good)
What Is A Good Estimator
Unbiasedness
Mean of Estimators distribution must equal
the parameter it is to estimate
Value of parameter to be
estimated
Estimator 1 (Bad)
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What Is A Good Estimator
Efficiency
Smaller the standard error of the estimate,
more efficient the estimator
Estimator 1
Estimator 2 Efficient
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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
For population variance
it is sample variance
For population proportion p
It is sample proportion
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Interval Estimates
When we compute an we can ask how far
could be?
For that we need to know std error of
We generate intervals around 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
1 around
1 around
1 around
1 around
2 around
2 around
2 around
2 around
68% Confidence Level

68% intervals will cover
95.5% Confidence Level

95.5% intervals will cover
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Notice that larger the interval, greater the confidence level
Most Commonly Used Confidence Levels
90% 1.64 standard errors
95% 1.96 standard errors
99% 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:
If only sample std dev is given:
If, further, population is finite, use FPC:
Then CI is:

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) ( * ) ( dev std proper z proper x
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: = 21 = 6 n = 100
The standard error of the mean of samples of
size 100 =
For 95% confidence, we use z = 1.96
So confidence interval is
22.18 and 19.82
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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: = 11800 s = 950 n = 50 N = 700
Since is unknown, use s as an estimate of
Then, we can only get , not
Also since n/N > 0.05, we will have to use finite-
population-correction.
Thus,

For 90% confidence, we use 1.64
Confidence interval is: 11800 1.64(129.57)
= 12012.50 and 11587.50
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57 . 129 ) 9643 . 0 ( 37 . 134

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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
the CL. Set = half-width
Choose z from Normal table as per CL
But . So
Solve for n.
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halfwidth
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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
For 95% CL, z = 1.96, and
So
Solving for n, we get n = (1.96x6)
2
= 11.76
2
= 139

What was the previous half-width and sample
size? (1.18 months and 100)
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)
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Df 0.10 0.05 0.02 0.01
(90%) (95%) (98%) (99%)
1 6.314
2 2.92
3 2.353
4 2.132
5 1.943
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Total 2-Tail Probabilities
EXTRACT FROM t-DISTRIBUTION
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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: = 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
We calculate
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 of a sample.
We can construct confidence intervals on

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How To Use Sampling Distn Of
We note sampling distn of is almost Normal
Mean of sampling distribution of , = p.
Std deviation of sampling dist of , =
We estimate p by
We estimate by
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, = 0.4 CL = 99%.
Then = = 0.057

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