Estimation

Dr. Durba Chakrabarty

ITM BUSINESS SCHOOL
PGDM 2023-2025
Inferential Statistics

► Research is about trying to make valid inferences

► Inferential statistics: the part of statistics that allows
researchers to generalize their findings beyond data
collected.
► Statistical inference: a procedure for making
inferences or generalizations about a larger
population from a sample of that population
► Statistical inference ≡ generalizing from a sample to a
population with calculated degree of certainty
► Two forms of statistical inference
► Estimation
► Hypothesis testing
 Basic Terminology

► Population: entire sample space or set or the universe

► Parameter: the numbers that describe characteristics of scores
in the population (mean, variance, s.d., etc.)
► Sample: a part of the population
► Statistic: the numbers that describe characteristics of scores in
the sample (mean, variance, s.d., correlation coefficient, etc.)
► Estimate: a number computed by using the data collected from
a sample
► Estimator: formula used to compute an estimate
Estimation

►Point Estimation
►Interval estimation
►Confidence Intervals
Point Estimate
► A point estimate is a single value (statistic) used to estimate a
population value (parameter)

POINT ESTIMATE The statistic, computed from

sample information, that estimates a population
parameter.

► Example
► Suppose the Bureau of Tourism for India wants an estimate of
the mean amount spent by tourists visiting that country. They
randomly select 500 tourists as they depart and ask these
tourists about their spending while there. The mean amount
spent by the sample of 500 tourists serves as an estimate of the
unknown population parameter.
Interval Estimates

► An interval estimate provides more information about a

population characteristic than does a point estimate
► Interval Estimation: an inferential statistical procedure used
to estimate population parameters from sample data
through the building of confidence intervals
► Confidence Intervals: a range of values computed from
sample data that has a known probability of capturing some
population parameter of interest
► A defined interval of values that includes the statistic of
interest, by adding and subtracting a specific amount
from the computed statistic
Parameters and statistics
Parameters Statistics

Source Population Sample

Notation Greek (μ, σ) Roman (x, s)

Random No Yes
variable?
Calculated No Yes
Interval Estimation
• Population Mean: σ Known

• Population Mean: σ Unknown

• In order to develop an interval estimate of a population

mean, the margin of error must be computed using
either:
• the population standard deviation σ , or
• the sample standard deviation s

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Confidence Intervals
► A confidence interval is a range of values within which the
population parameter is expected to occur
CONFIDENCE INTERVAL A range of values constructed from
sample data so that the population parameter is likely to occur
within that range at a specified probability. The specified
probability is called the level of confidence.

► The factors that determine the width of a confidence interval for

a mean are
► The number of observations in the sample, n
► The variability in the population, usually estimated by the sample
standard deviation, s
► The desired level of confidence
Confidence Intervals

► An interval gives a range of values

► Takes into consideration variation in sample statistics from
sample to sample
► Gives information about closeness to unknown population
parameters
► Stated in terms of level of confidence, e.g., 95%
confident, 99% confident
► Can never be 100% confident
Margin of Error and the Interval Estimate
• A point estimator cannot be expected to provide the exact
value of the population parameter.
• An interval estimate can be computed by adding and
subtracting a margin of error to the point estimate.
Point Estimate +/- Margin of Error
• The purpose of an interval estimate is to provide information
about how close the point estimate is to the value of the
parameter.

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► To determine the confidence limits when the population
standard deviation is known, we use the z distribution
► The formula is
Interval Estimate of a Population Mean: σ
Known
► Interval Estimate of μ

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Interval Estimate of a Population Mean: σ Known

► Values of zα/2 for the Most Commonly Used Confidence Levels

Meaning of Confidence

►
Finding a Value of z
► The method for finding z for a 95% confidence interval is
► Divide the confidence interval in half, .9500/2 = .4750
► Find the value .4750 in the body of the table
► Identify the row and column and add the values
► The probability of finding a value between 0 and 1.96
is .4750
► So, the probability of finding a value between +/- 1.96
is .9500
Finding a Value of z
► The method for finding z for a 95% confidence interval is
Level of Confidence, z Example
The American Management Association is studying the
income of store managers in the retail industry. A random
sample of 49 managers reveals a sample mean of $45,420.
The standard deviation of the population is $2,050.

1. What is the population mean?

2. What is a reasonable range of values for the population
mean?
3. How do we interpret these results?
Level of Confidence, z Example
► To determine the confidence limits when the population
standard deviation is unknown, we use the t distribution
► The formula is
Interval Estimate of a Population Mean: σ
Unknown
► Interval Estimate

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t distribution

► A specific t distribution depends on a parameter known

as the degrees of freedom.
► Degrees of freedom refer to the number of independent
pieces of information that go into the computation of s.
► A t distribution with more degrees of freedom has less
dispersion.
► As the degrees of freedom increases, the difference
between the t distribution and the standard normal
probability distribution becomes smaller and smaller.
Interval Estimate of a Population Mean: σ
Unknown
• Example: Apartment Rents
A reporter for a student newspaper is writing an article on the
cost of off-campus housing. A sample of 16 one-bedroom
apartments within a half-mile of campus resulted in a sample
mean of $750 per month and a sample standard deviation of $55.

Let us provide a 95% confidence interval estimate of the mean rent

per month for the population of one-bedroom apartments within a half-
mile of campus. We will assume this population to be normally
distributed.

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Interval Estimate of a Population Mean: σ Unknown

► At 95% confidence, α= .05, and α/2 = .025

► t.025 is based on n - 1 = 16 - 1 = 15 degrees of freedom
Interval Estimate of a Population Mean: σ
Unknown
• Interval Estimate

We are 95% confident that the mean rent per

month for the population of one-bedroom apartments
within a half-mile of campus is between $720.70 and
$779.30.

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