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Introduction to Estimation
10.1
Estimation
There are two types of inference: estimation and hypothesis testing; estimation is introduced first. The objective of estimation is to determine the approximate value of a population parameter on the basis of a sample statistic. E.g., the sample mean ( population mean ( ). ) is employed to estimate the
10.2
Estimation
The objective of estimation is to determine the approximate value of a population parameter on the basis of a sample statistic. There are two types of estimators: Point Estimator
Interval Estimator
10.3
Point Estimator
A point estimator draws inferences about a population by estimating the value of an unknown parameter using a single value or point.
We saw earlier that point probabilities in continuous distributions were virtually zero. Likewise, wed expect that the point estimator gets closer to the parameter value with an increased sample size, but point estimators dont reflect the effects of larger sample sizes. Hence we will employ the interval estimator to estimate population parameters
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.
10.4
Interval Estimator
An interval estimator draws inferences about a population by estimating the value of an unknown parameter using an interval.
That is we say (with some ___% certainty) that the population parameter of interest is between some lower and upper bounds.
10.5
point estimate
interval estimate
An alternative statement is: The mean income is between 380 and 420 $/week.
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.
10.6
Qualities desirable in estimators include unbiasedness, consistency, and relative efficiency: An unbiased estimator of a population parameter is an estimator whose expected value is equal to that parameter. An unbiased estimator is said to be consistent if the difference between the estimator and the parameter grows smaller as the sample size grows larger. If there are two unbiased estimators of a parameter, the one whose variance is smaller is said to be relatively efficient.
10.7
10.8
Graphically
the actual location of the population mean
may be here
or here
The population mean is a fixed but unknown quantity. Its incorrect to interpret the confidence interval estimate as a probability statement about . The interval acts as the lower and upper limits of the interval estimate of the population mean.
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.
10.9
Table 10.1
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.
10.10
Example 10.1
A computer company samples demand during lead time over 25 time periods:
235 421 394 261 386 374 361 439 374 316 309 514 348 302 296 499 462 344 466 332 253 369 330 535 334
Its is known that the standard deviation of demand over lead time is 75 computers. We want to estimate the mean demand over lead time with 95% confidence in order to set inventory levels
10.11
Example 10.1
We want to estimate the mean demand over lead time with 95% confidence in order to set inventory levels
IDENTIFY
10.12
Example 10.1
CALCULATE
In order to use our confidence interval estimator, we need the following pieces of data: 370.16 1.96 Calculated from the data
75
n
therefore:
Given
25
The lower and upper confidence limits are 340.76 and 399.56.
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.
10.13
Interval Width
A wide interval provides little information. For example, suppose we estimate with 95% confidence that an accountants average starting salary is between $15,000 and $100,000. Contrast this with: a 95% confidence interval estimate of starting salaries between $42,000 and $45,000. The second estimate is much narrower, providing accounting students more precise information about starting salaries.
10.14
Interval Width
The width of the confidence interval estimate is a function of the confidence level, the population standard deviation, and the sample size
10.15
Interval Width
The width of the confidence interval estimate is a function of the confidence level, the population standard deviation, and the sample size
10.16
Interval Width
The width of the confidence interval estimate is a function of the confidence level, the population standard deviation, and the sample size
10.17
Interval Width
The width of the confidence interval estimate is a function of the confidence level, the population standard deviation, and the sample size
Increasing the sample size decreases the width of the confidence interval while the confidence level can remain unchanged. Note: this also increases the cost of obtaining additional data
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.
10.18
It follows that
Solve for n to get requisite sample size!
Copyright 2005 Brooks/Cole, a division of Thomson Learning, Inc.
10.19
that is, to produce a 95% confidence interval estimate of the mean (5 units), we need to sample 865 lead time periods (vs. the 25 data points we have currently).
10.20
10.21
Example 10.2
A lumber company must estimate the mean diameter of trees to determine whether or not there is sufficient lumber to harvest an area of forest. They need to estimate this to within 1 inch at a confidence level of 99%. The tree diameters are normally distributed with a standard deviation of 6 inches. How many trees need to be sampled?
10.22
Example 10.2
Things we know: Confidence level = 99%, therefore =.01
10.23
Example 10.2
We compute
That is, we will need to sample at least 239 trees to have a 99% confidence interval of 1
10.24