# Estimation

CO-4: Distinguish among different measurement scales, choose the appropriate descriptive and inferential statistical methods based on these distinctions, and interpret the results.
CO-6: Apply basic concepts of probability, random variation, and commonly used statistical probability distributions.
Video: Estimation (11:40)

## Introduction

In our Introduction to Inference we defined point estimates and interval estimates.

• In point estimation, we estimate an unknown parameter using a single number that is calculated from the sample data.
• In interval estimation, we estimate an unknown parameter using an interval of values that is likely to contain the true value of that parameter (and state how confident we are that this interval indeed captures the true value of the parameter).

In this section, we will introduce the concept of a confidence interval and learn to calculate confidence intervals for population means and population proportions (when certain conditions are met).

In Unit 4B, we will see that confidence intervals are useful whenever we wish to use data to estimate an unknown population parameter, even when this parameter is estimated using multiple variables (such as our cases: CC, CQ, QQ).

For example, we can construct confidence intervals for the slope of a regression equation or the correlation coefficient. In doing so we are always using our data to provide an interval estimate for an unknown population parameter (the TRUE slope, or the TRUE correlation coefficient).

## Point Estimation

LO 4.29: Determine and use the correct point estimates for specified population parameters.

Point estimation is the form of statistical inference in which, based on the sample data, we estimate the unknown parameter of interest using a single value (hence the name point estimation). As the following two examples illustrate, this form of inference is quite intuitive.

## EXAMPLE:

Suppose that we are interested in studying the IQ levels of students at Smart University (SU). In particular (since IQ level is a quantitative variable), we are interested in estimating µ (mu), the mean IQ level of all the students at SU.

A random sample of 100 SU students was chosen, and their (sample) mean IQ level was found to be 115 (x-bar).

If we wanted to estimate µ (mu), the population mean IQ level, by a single number based on the sample, it would make intuitive sense to use the corresponding quantity in the sample, the sample mean which is 115. We say that 115 is the point estimate for µ (mu), and in general, we’ll always use the sample mean (x-bar) as the point estimator for µ (mu). (Note that when we talk about the specific value (115), we use the term estimate, and when we talk in general about the statistic x-bar, we use the term estimator. The following figure summarizes this example:

Here is another example.

## EXAMPLE:

Suppose that we are interested in the opinions of U.S. adults regarding legalizing the use of marijuana. In particular, we are interested in the parameter p, the proportion of U.S. adults who believe marijuana should be legalized.

Suppose a poll of 1,000 U.S. adults finds that 560 of them believe marijuana should be legalized. If we wanted to estimate p, the population proportion, using a single number based on the sample, it would make intuitive sense to use the corresponding quantity in the sample, the sample proportion p-hat = 560/1000 = 0.56. We say in this case that 0.56 is the point estimate for p, and in general, we’ll always use p-hat as the point estimator for p. (Note, again, that when we talk about the specific value (0.56), we use the term estimate, and when we talk in general about the statistic p-hat, we use the term estimator. Here is a visual summary of this example:

Did I Get This?: Point Estimation

## Desired Properties of Point Estimators

You may feel that since it is so intuitive, you could have figured out point estimation on your own, even without the benefit of an entire course in statistics. Certainly, our intuition tells us that the best estimator for the population mean (mu, µ) should be x-bar, and the best estimator for the population proportion p should be p-hat.

Probability theory does more than this; it actually gives an explanation (beyond intuition) why x-bar and p-hat are the good choices as point estimators for µ (mu) and p, respectively. In the Sampling Distributions section of the Probability unit, we learned about the sampling distribution of x-bar and found that as long as a sample is taken at random, the distribution of sample means is exactly centered at the value of population mean.

Our statistic, x-bar, is therefore said to be an unbiased estimator for µ (mu). Any particular sample mean might turn out to be less than the actual population mean, or it might turn out to be more. But in the long run, such sample means are “on target” in that they will not underestimate any more or less often than they overestimate.

Likewise, we learned that the sampling distribution of the sample proportion, p-hat, is centered at the population proportion p (as long as the sample is taken at random), thus making p-hat an unbiased estimator for p.

As stated in the introduction, probability theory plays an essential role as we establish results for statistical inference. Our assertion above that sample mean and sample proportion are unbiased estimators is the first such instance.

## Importance of Sampling and Design

Notice how important the principles of sampling and design are for our above results: if the sample of U.S. adults in (example 2 on the previous page) was not random, but instead included predominantly college students, then 0.56 would be a biased estimate for p, the proportion of all U.S. adults who believe marijuana should be legalized.

If the survey design were flawed, such as loading the question with a reminder about the dangers of marijuana leading to hard drugs, or a reminder about the benefits of marijuana for cancer patients, then 0.56 would be biased on the low or high side, respectively.

Our point estimates are truly unbiased estimates for the population parameter only if the sample is random and the study design is not flawed.

## Standard Error and Sample Size

Not only are the sample mean and sample proportion on target as long as the samples are random, but their precision improves as sample size increases.

Again, there are two “layers” here for explaining this.

Intuitively, larger sample sizes give us more information with which to pin down the true nature of the population. We can therefore expect the sample mean and sample proportion obtained from a larger sample to be closer to the population mean and proportion, respectively. In the extreme, when we sample the whole population (which is called a census), the sample mean and sample proportion will exactly coincide with the population mean and population proportion.There is another layer here that, again, comes from what we learned about the sampling distributions of the sample mean and the sample proportion. Let’s use the sample mean for the explanation.

Recall that the sampling distribution of the sample mean x-bar is, as we mentioned before, centered at the population mean µ (mu)and has a standard error (standard deviation of the statistic, x-bar) of

As a result, as the sample size n increases, the sampling distribution of x-bar gets less spread out. This means that values of x-bar that are based on a larger sample are more likely to be closer to µ (mu) (as the figure below illustrates):

Similarly, since the sampling distribution of p-hat is centered at p and has a

which decreases as the sample size gets larger, values of p-hat are more likely to be closer to p when the sample size is larger.

## Another Point Estimator

Another example of a point estimator is using sample standard deviation,

to estimate population standard deviation, σ (sigma).

In this course, we will not be concerned with estimating the population standard deviation for its own sake, but since we will often substitute the sample standard deviation (s) for σ (sigma) when standardizing the sample mean, it is worth pointing out that s is an unbiased estimator for σ (sigma).

If we had divided by n instead of n – 1 in our estimator for population standard deviation, then in the long run our sample variance would be guilty of a slight underestimation. Division by n – 1 accomplishes the goal of making this point estimator unbiased.

The reason that our formula for s, introduced in the Exploratory Data Analysis unit, involves division by n – 1 instead of by n is the fact that we wish to use unbiased estimators in practice.

## Let’s Summarize

• We use p-hat (sample proportion) as a point estimator for p (population proportion). It is an unbiased estimator: its long-run distribution is centered at p as long as the sample is random.
• We use x-bar (sample mean) as a point estimator for µ (mu, population mean). It is an unbiased estimator: its long-run distribution is centered at µ (mu) as long as the sample is random.
• In both cases, the larger the sample size, the more precise the point estimator is. In other words, the larger the sample size, the more likely it is that the sample mean (proportion) is close to the unknown population mean (proportion).

## Interval Estimation

Point estimation is simple and intuitive, but also a bit problematic. Here is why:

When we estimate μ (mu) by the sample mean x-bar we are almost guaranteed to make some kind of error. Even though we know that the values of x-bar fall around μ (mu), it is very unlikely that the value of x-bar will fall exactly at μ (mu).

Given that such errors are a fact of life for point estimates (by the mere fact that we are basing our estimate on one sample that is a small fraction of the population), these estimates are in themselves of limited usefulness, unless we are able to quantify the extent of the estimation error. Interval estimation addresses this issue. The idea behind interval estimation is, therefore, to enhance the simple point estimates by supplying information about the size of the error attached.

In this introduction, we’ll provide examples that will give you a solid intuition about the basic idea behind interval estimation.

## EXAMPLE:

Consider the example that we discussed in the point estimation section:

Suppose that we are interested in studying the IQ levels of students attending Smart University (SU). In particular (since IQ level is a quantitative variable), we are interested in estimating μ (mu), the mean IQ level of all the students in SU. A random sample of 100 SU students was chosen, and their (sample) mean IQ level was found to be 115 (x-bar).

In point estimation we used x-bar = 115 as the point estimate for μ (mu). However, we had no idea of what the estimation error involved in such an estimation might be. Interval estimation takes point estimation a step further and says something like:

“I am 95% confident that by using the point estimate x-bar = 115 to estimate μ (mu), I am off by no more than 3 IQ points. In other words, I am 95% confident that μ (mu) is within 3 of 115, or between 112 (115 – 3) and 118 (115 + 3).”

Yet another way to say the same thing is: I am 95% confident that μ (mu) is somewhere in (or covered by) the interval (112,118). (Comment: At this point you should not worry about, or try to figure out, how we got these numbers. We’ll do that later. All we want to do here is make sure you understand the idea.)

Note that while point estimation provided just one number as an estimate for μ (mu) of 115, interval estimation provides a whole interval of “plausible values” for μ (mu) (between 112 and 118), and also attaches the level of our confidence that this interval indeed includes the value of μ (mu) to our estimation (in our example, 95% confidence). The interval (112,118) is therefore called “a 95% confidence interval for μ (mu).”

Let’s look at another example:

## EXAMPLE:

Let’s consider the second example from the point estimation section.

Suppose that we are interested in the opinions of U.S. adults regarding legalizing the use of marijuana. In particular, we are interested in the parameter p, the proportion of U.S. adults who believe marijuana should be legalized.

Suppose a poll of 1,000 U.S. adults finds that 560 of them believe marijuana should be legalized.

If we wanted to estimate p, the population proportion, by a single number based on the sample, it would make intuitive sense to use the corresponding quantity in the sample, the sample proportion p-hat = 560/1000=0.56.

Interval estimation would take this a step further and say something like:

“I am 90% confident that by using 0.56 to estimate the true population proportion, p, I am off by (or, I have an error of) no more than 0.03 (or 3 percentage points). In other words, I am 90% confident that the actual value of p is somewhere between 0.53 (0.56 – 0.03) and 0.59 (0.56 + 0.03).”

Yet another way of saying this is: “I am 90% confident that p is covered by the interval (0.53, 0.59).”

In this example, (0.53, 0.59) is a 90% confidence interval for p.

## Let’s summarize

The two examples showed us that the idea behind interval estimation is, instead of providing just one number for estimating an unknown parameter of interest, to provide an interval of plausible values of the parameter plus a level of confidence that the value of the parameter is covered by this interval.

We are now going to go into more detail and learn how these confidence intervals are created and interpreted in context. As you’ll see, the ideas that were developed in the “Sampling Distributions” section of the Probability unit will, again, be very important. Recall that for point estimation, our understanding of sampling distributions leads to verification that our statistics are unbiased and gives us a precise formulas for the standard error of our statistics.

We’ll start by discussing confidence intervals for the population mean μ (mu), and later discuss confidence intervals for the population proportion p.