Point Estimator

A point estimator draws inference about a

population by estimating the value of an
unknown parameter using a single value
or point.

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 Point Estimator
A point estimator draws inference about a
population by estimating the value of an
unknown parameter using a single value
or point.
Parameter
Population distribution

Sampling distribution

Point estimator 2
 Interval Estimator
An interval estimator draws inferences
about a population by estimating the value
of an unknown parameter using an
interval.
Population distribution Parameter

Sample distribution

Interval estimator
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 Estimator’s Characteristics
Selecting the right sample statistic to estimate a
parameter value depends on the characteristics of the
statistic.
Estimator’s desirable characteristics:
Unbiasedness: An unbiased estimator is one whose
expected value is equal to the parameter it estimates.
Consistency: An unbiased estimator is said to be
consistent if the difference between the estimator and
the parameter grows smaller as the sample size
increases.
Relative efficiency: For two unbiased estimators, the one
with a smaller variance is said to be relatively efficient.
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Estimating the Population Mean when the
Population Variance is Known
How is an interval estimator produced from a
sampling distribution?
 A sample of size n is drawn from the population, and
its mean x is calculated.
 By the central limit theorem x is normally distributed
(or approximately normally distributed.), thus…

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Estimating the Population Mean when the
Population Variance is Known

x 
Z
 n

We have established before that

 
P(  z  2  x    z 2 )  1 
n n
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The Confidence Interval for  (  is known)
This leads to the following equivalent
statement

 
P( x  z  2    x  z 2 )  1 
n n

The confidence interval

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 Interpreting the Confidence Interval for 

1 –  of all the values of x obtained in repeated

sampling from a given distribution, construct an interval
   
x  z 2 n , x  z 2 n 
 
that includes (covers) the expected value of the
population.
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 Graphical Demonstration of the
Confidence Interval for 

Confidence level

1-

 
x  z 2 x x  z 2
n n

Lower confidence limit  Upper confidence limit

2z  2
n
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The Confidence Interval for  (  is known)
Four commonly used confidence levels

Confidence
level  /2 z/2
0.90 0.10 0.05 1.645
0.95 0.05 0.025 1.96
0.98 0.02 0.01 2.33
0.99 0.01 0.005 2.575

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The Confidence Interval for  (  is known)
• Example: Estimate the mean value of the distribution resulting from
the throw of a fair die. It is known that  = 1.71. Use a 90%
confidence level, and 100 repeated throws of the die

•Solution: The confidence interval is

 1.71
x  z 2  x  1.645  x  .28
n 100
The mean values obtained in repeated draws of samples of size
100 result in interval estimators of the form
[sample mean - .28, Sample mean + .28],
90% of which cover the real mean of the distribution.
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The Confidence Interval for  (  is known)
• Recalculate the confidence interval for 95% confidence level.
 1.71
• Solution: x  z  2  x  1.96  x  .34
n 100

.95
.90
x  .28 x  .28
x  .34 x  .34
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The Confidence Interval for  (  is known)

• The width of the 90% confidence interval = 2(.28) = .56

The width of the 95% confidence interval = 2(.34) = .68

• Because the 95% confidence interval is wider, it is

more likely to include the value of .

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The Confidence Interval for  (  is known)
Example
 Doll Computer Company delivers computers directly to
its customers who order via the Internet.
 To reduce inventory costs in its warehouses Doll
employs an inventory model, that requires the estimate
of the mean demand during lead time.
 It is found that lead time demand is normally distributed
with a standard deviation of 75 computers per lead
time.
 Estimate the lead time demand with 95% confidence.
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The Confidence Interval for  (  is known)
Example – Solution
 The parameter to be estimated is , the mean
demand during lead time.
 We need to compute the interval estimation for .

 From the data provided in file Xm10-01, the sample

mean is x  370.16.
 75 Since 1 -  =.95,  = .05.
x  z 2  370.16  z .025 Thus /2 = .025. Z.025 = 1.96
n 25
75
 370.16  1.96  370.16  29.40  340.76, 399.56
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The Confidence Interval for  (  is known)
Using Excel
Tools > Data Analysis Plus > Z Estimate: Mean

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 The Width of the Confidence Interval

The width of the confidence interval is

affected by
• the population standard deviation ()
• the confidence level (1-)+significance
level, alpha
• the sample size (n).

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 The Affects of  on the interval width

/2 = .05 /2 = .05

90%

Confidence level

 
2z.05  2(1.645)
n n Suppose the standard
deviation has increased
1.5 1.5
2z .05  2(1.645) by 50%.
n n

To maintain a certain level of confidence, a larger

standard deviation requires a larger confidence interval.
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The Affects of Changing the Confidence Level

/2 = 5% /2 = 5%
/2 = 2.5% /2 = 2.5%
Confidence level
90%
95%

 
2z .05  2(1.645)
n n Let us increase the
confidence level
  from 90% to 95%.
2z .025  2(1.96)
n n
Larger confidence level produces a wider confidence interval
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The Affects of Changing the Sample Size

90%

Confidence level

 
2z .05  2(1.645)
n n

Increasing the sample size decreases the width of the

confidence interval while the confidence level can remain
unchanged.
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Selecting the Sample size
We can control the width of the confidence interval by
changing the sample size.
Thus, we determine the interval width first, and derive the
required sample size.
The phrase “estimate the mean to within W units”,
translates to an interval estimate of the form

x e
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 Selecting the Sample size
The required sample size to estimate the mean is
2
 z  2 
n 
 w 
Click Here to see how the formula is developed.

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Selecting the Sample size

Example
 To estimate the amount of lumber that can be
harvested in a tract of land, the mean diameter
of trees in the tract must be estimated to within
one inch with 99% confidence.
 What sample size should be taken? Assume
that diameters are normally distributed with  =
6 inches.
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Selecting the Sample size
Solution
 The estimate accuracy is +/-1 inch. That is w = 1.
 The confidence level 99% leads to  = .01, thus z/2
= z.005 = 2.575. 2 2
z 
  2   2.575(6) 
 We compute n     239
 w   1 
If the standard deviation is really 6 inches,
the interval resulting from the random sampling
will be of the form x  1. If the standard deviation
is greater than 6 inches the actual interval will
be wider than +/-1. 24
 Inference About a Population Mean When
the Population Standard Deviation Is
Unknown
Recall that when  is known we use the following
statistic to estimate and test a population mean
x
z
 n

When  is unknown, we use its point estimator s,

and the z-statistic is replaced then by the t-statistic

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The t - Statistic

x  x
Z t
 n s n

When the sampled population is normally distributed

the t statistic is Student t distributed.

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 The t - Statistic

x
t
s n

The t distribution is mound-shaped, The “degrees of freedom”,

and symmetrical around zero. (a function of the sample size)
determine how spread the
d.f. = v2 distribution is (compared to the
d.f. = v1 normal distribution)
v1 < v2
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Estimating  when  is unknown

Confidence interval estimator of  when  is

unknown

s
x  t 2 d.f .  n  1
n

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