Chapter 3: Statistical Estimation

3.1. Types of Statistical Estimation

❑Goal: How can we use sample data to estimate values
of population parameters?
❑ Two types of estimation:
1) Point estimate: A single value that computed from
a sample to estimate a population parameter
2) Interval estimate – is an interval of numbers
around the point estimate, that has a fixed
“confidence level” of containing the parameter
value, called a confidence interval.
 Most common point estimators
Population Sample

Mean m mˆ = y =  y i

Standard deviation
s sˆ = s =  i
( y − y ) 2

n −1
3.2. Properties of Estimators
• Unbiased: Sampling distribution of the estimator
centers around the parameter value E ˆ  =  for all   

• A sufficient statistic, Y, is a statistic which contains all

the information for the estimation of .
• Efficient: Smallest possible standard error, compared
to other estimators
Example: Point estimate
• To set the price of a product, one strategy is a competition-
oriented in which you fix the price of your product at the
average level charged by other producers. Suppose you want to
market a 200 gram bar soap that you produce. The current
wholesale prices from a random sample of 10 soap producers
(Birr) are:
1.00 1.35 1.50 0.95 0.90
1.25 1.00 1.20 0.90 1.50
a) What is an estimate of the mean wholesale price charged by
all producers? (Ans. = 1.155)
b) Find an estimate of the standard deviation in the whole prices
of all producers. (Ans. = 0.238)
3.3. Confidence Interval for the Population Mean

• Confidence interval – is a range of values constructed from

sample data so that a parameter occurs within that range at a
preselected probability. The preselected probability is called
“level of confidence”.
• Note:
– 90% of the sample means lie within 1.65 standard
deviation of the population mean
– 95% of the sample means lie within 1.96 standard
deviation of the population mean
– 99% of the sample mean will lie within 2.58 standard
deviation of the population mean
Example: confidence interval for population mean
3.4. Confidence Interval for the Difference of Means

• If 𝒙
ഥ𝟏 and 𝒙
ഥ𝟐 are sample means based on large
and independent random samples of size 𝒏𝟏 ≥
𝟑𝟎and 𝒏𝟐 ≥ 𝟑𝟎from two infinite populations
with means 𝝁𝟏 and 𝝁𝟐 with standard deviation
𝝈𝟏 and 𝝈𝟐 , respectively, then with ሺ𝟏 −
𝜶ሻ𝟏𝟎𝟎%confidence interval for the difference of
population means (𝝁𝟏 - 𝝁𝟐 ) is given by ሺഥ
𝒙𝟏 -

𝝈𝟐 𝟏 𝝈𝟐 𝟐
ഥ 𝟐 ሻ ± 𝒁𝜶
𝒙 +
𝟐 𝒏𝟏 𝒏𝟐
Example: difference between two population means

• A sample of 150 brand A light bulbs showed a mean

life time of 1,400 hrs and a standard deviation of 120
hrs. A sample of 200 brand B light bulbs showed a
mean life time of 1,200 hrs and a standard deviations
of 80 hrs.
a) Find a 95% and 99% confidence interval for the
difference of the mean lifetimes of the populations
of brand A and brand B.
Ans. 95% confidence interval is (175.2, 224.8)
Ans. 99% confidence interval is (167.4, 232,6)
3.5. Confidence Interval for Proportions

• A 𝟏 − 𝜶 𝟏𝟎𝟎%confidence interval for the

𝑷ሺ𝟏−𝑷ሻ
population proportion 𝝅 is found by 𝑷 ± 𝒁𝜶 𝒏
𝟐
where P = sample proportion
𝒁𝜶 =the standard normal value corresponding to
𝟐
the described level of confidence
n = sample size (i.e., 𝒏 ≥ 𝟑𝟎ሻ
Example: confidence interval for population
proportion
• Suppose 1,600 of 2,000 registered voters sampled
said they planned to vote for the Prosperity Party
candidate for Mayor of Addis Ababa. Using 95%
degree of confidence, what is the interval estimate
for the population proportion?
➢ Ans. = (0.7825, 0.8175)
➢ Interpretation: if election were held today, we are
95% sure that the Prosperity Party candidate for
mayor of Addis Ababa would receive between
78.2% and 81.8% of the vote.
3.6. Sample Size Determination
❑ The correct sample size depends on three factors:
1) The level of confidence desired
2) The variability in the population being studied
3) The maximum allowable error
❑ The maximum allowable error (E)
✓ is the amount of error that the researcher is willing to
tolerate
✓ is the amount that was added and subtracted from the
sample mean to obtain the limits of the confidence
interval.
❖ A small allowable error will require a large sample size,
where as a large allowable error will permit smaller sample
sizes.
3.6.1. Sample Size Determination – estimating population mean

• Sample size determination when estimating

𝒁∗𝑺 𝟐
population mean will be 𝒏 =
𝑬
where,
E = the maximum allowable error
S = the estimate of the population standard deviation
n = sample size
Z = standard normal value corresponding to the desired
level of significance
Note:
❖ Because the result of this computation is NOTalways a whole
number, the usual conservative practice is to round up any
fractional result
Example: Sample Size Determination – estimating population mean
A study is to be conducted on the mean salary of mayors of
cities with a population of fewer than 100,000. The error (E) in
estimating the mean is to be less than Birr 100 and a
confidence level of 95% is desired. Suppose that the standard
deviation of the population is estimated to be Birr 1,000. What
is the required sample size?
Solution:
E = Birr 100
The value of Z for a 95% confidence = 1.96
S = Birr 1,000
𝒁∗𝑺 𝟐
The required sample size 𝒏 = = 384.16 = 385
𝑬
❖ If a higher level of confidence were desired, say 99%, then
larger sample would be required n = 665.64 = 666. Check!
3.6.2. Sample Size Determination – for proportions

• To determine the sample size for proportion, we use

𝒁 𝟐
the following formula 𝒏 = 𝑷ሺ𝟏 − 𝑷ሻ
𝑬
• The value of Pcan be estimated from pilot study. If no
estimate is available, the value of 0.50 is used. Why?
Because the term P(1-P) can never be larger than
when P = 0.50.
Example: We are planning a survey to find the proportion of
cities that have a private garbage collectors. We want a
maximum error (E) of 0.10 and 90% confidence level, and
tentatively estimate the proportion (P) at 0.5. What is the
required sample size? Take 90% confidence level as at 1.65.
𝟏.𝟔𝟓 𝟐
𝐧 = 𝟎. 𝟓ሺ𝟏 − 𝟎. 𝟓ሻ
𝟎.𝟏𝟎
= 68.0625 = 69
END OF CHAPTER 3