Inferential Statistics

Inferential statistics is one of the two main branches of statistics.
Inferential statistics use a random sample of data taken from a population to describe
and make inferences about the population. Inferential statistics are valuable when
examination of each member of an entire population is not convenient or possible. For
example, to measure the diameter of each nail that is manufactured in a mill is
impractical. You can measure the diameters of a representative random sample of nails.
You can use the information from the sample to make generalizations about the
diameters of all of the nails.
A hypothesis test is rule that specifies whether to accept or reject a claim about a
population depending on the evidence provided by a sample of data.
A hypothesis test examines two opposing hypotheses about a population: the null
hypothesis and the alternative hypothesis. The null hypothesis is the statement being
tested. Usually the null hypothesis is a statement of "no effect" or "no difference". The
alternative hypothesis is the statement you want to be able to conclude is true based
on evidence provided by the sample data.
Based on the sample data, the test determines whether to reject the null hypothesis.
You use a p-value, to make the determination. If the p-value is less than the
significance level (denoted as α or alpha), then you can reject the null hypothesis.
A common misconception is that statistical hypothesis tests are designed to select the
more likely of two hypotheses. However, in designing a hypothesis test, we set the null
hypothesis up as what we want to disapprove. Because we fix the significance level to
be small before the analysis (usually, a value of 0.05 works well), when we reject the
null hypothesis, we have statistical proof that the alternative is true. Conversely, if we
fail to reject the null hypothesis we do not have statistical proof that the null hypothesis
is true. This is because we have not fixed the probability that we falsely accepting the
null hypothesis to be small.
Examples of questions you can answer with a hypothesis test include:

Does the mean height of undergraduate women differ from 66 inches?
Is the standard deviation of their height equal to or less than 5 inches?
Do male and female undergraduates differ in height on average?
Is the proportion undergraduate male students significantly higher than the proportion
of undergraduate female students?
What is Inferential Statistics?

Inferential statistics enables one to make descriptions of data and draw
inferences and conclusions from the respective data. Through inferential
statistics, an individual can conclude what a population may think or how
it’s been affected by taking sample data.

Inferential statistics is mainly used to derive estimates about a large group
(or population) and draw conclusions on the data based on hypotheses
testing methods.
Inferential statistics makes use of sample data because it is more cost-

effective and less tedious than collecting data from an entire population. It
allows one to come to reasonable assumptions about the larger
population based on a sample’s characteristics. Sampling methods need
to be unbiased and random for statistical conclusions and inferences to
be validated.
Summary
 Inferential statistics enables one to make descriptions of data

and draw inferences and conclusions from the respective data.
 Inferential statistics makes use of sample data because it is
more cost-effective and less tedious than collecting data from
an entire population.
 It allows one to come to reasonable assumptions about the
larger population based on a sample’s characteristics.
Population Parameters, Sample Statistics, Sampling Errors, and

Confidence Intervals
A statistic is a metric used to provide an overview of a sample, and a

parameter is a metric used to provide an overview of a population. The
two primary estimation types are the interval estimate and the point
estimate. The interval estimate (e.g., confidence interval) provides one
with a range of values in which a parameter is likely to be found. A point
estimate is one estimate of a parameter (e.g., sample mean).
Seeing as a sample is merely a portion of a larger population, sample data

does not capture information on the whole population, and this results in
a sampling error. Sampling error can be defined as the difference
between respective statistics (sample values) and parameters (population
values). The sampling error is inevitable when sample data is being used;
therefore, inferential statistics can be ambiguous. To minimize the
uncertainty created by the presence of sampling errors, probability
sampling methods can be applied in data analysis.
Confidence intervals allow for interval estimations for population values

(or parameters) by utilizing statistical variabilities. Confidence intervals
account for sampling errors. Confidence intervals, as with interval
estimates, provide a range of values in which a parameter is likely to be
found, and therefore, show the likelihood of point estimate uncertainty.
Point estimates and confidence intervals can be used in combination to
produce better results.
Every confidence interval is accompanied by a confidence level, which

indicates the probability of the interval. A 95% (percent) confidence
interval shows that if the same study is conducted numerous times with a
completely new sample each time, it is likely that 95% of the studies will
have an estimate that lies within the same range of values. It applies to
estimates and not necessarily to parameters.
To know more about different statistics concepts, check out

CFI’s Statistics Fundamentals course!
Hypothesis Testing
Hypothesis testing makes use of inferential statistics and is used to

analyze relationships between variables and make population
comparisons through the use of sample data. The steps for hypothesis
testing include having a stated research hypothesis (null and alternate),
data collection per the hypothesis test requirements, data analysis
through the appropriate test, a decision to reject or accept the null
hypothesis, and finally, a presentation and discussion of findings made.
Hypothesis testing falls under the “statistical tests” category. Statistical

tests account for sampling errors and can either be parametric (includes
assumptions made regarding population distribution parameters) or non-
parametric (does not include assumptions made regarding population
distribution parameters).
Parametric tests tend to be more trusted and reliable because they enable
the detection of potential effects. Parametric tests assume that the
population from which sample data is derived is normally distributed, the
sample size provides an adequate representation of the population from
which it was derived, and that the groups, variances, and measures of
spread are comparable.
Other Testing Methods
There are other testing methods, including correlation tests and

comparison tests. Correlation tests examine the association between two
variables and estimate the extent of the relationship. Examples of
correlation tests are the Pearson’s r test, Spearman’s r test, and the Chi-
square test of independence.
Comparison tests are used to determine differences in the decretive

statistics measures observed (mean, median, etc.). Examples of
comparison tests are the t-test, ANOVA, Mood’s median, Kruskal-Wallis H
test, etc.
More Resources
CFI is the official provider of the global Commercial Banking & Credit

Analyst (CBCA)® certification program, designed to help anyone become a
world-class financial analyst. To keep advancing your career, the
additional CFI resources below will be useful:
 Descriptive Statistics
 Hypothesis Testing
 Nonparametric Statistics
 Sampling Distribution

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Inferential statistics is one of the two main branches of statistics.

Examples of questions you can answer with a hypothesis test include:

What is Inferential Statistics?

Inferential statistics makes use of sample data because it is more cost-

 Inferential statistics enables one to make descriptions of data

Population Parameters, Sample Statistics, Sampling Errors, and

A statistic is a metric used to provide an overview of a sample, and a

Seeing as a sample is merely a portion of a larger population, sample data

Confidence intervals allow for interval estimations for population values

Every confidence interval is accompanied by a confidence level, which

To know more about different statistics concepts, check out

Hypothesis testing makes use of inferential statistics and is used to

Hypothesis testing falls under the “statistical tests” category. Statistical

Other Testing Methods

There are other testing methods, including correlation tests and

Comparison tests are used to determine differences in the decretive

CFI is the official provider of the global Commercial Banking & Credit

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