Subject: Inferential Statistics

Module Number: 1.1

Module Name: Parameter Estimation – Preliminaries
Parameter Estimation – Preliminaries

AIM:

To understand the parameter estimation and learn the central limit theories an its
applications.

2
Parameter Estimation – Preliminaries

Objectives:

The Objectives of this module is to:

• Understand the estimation, central limit theory and its applications.

3
Parameter Estimation – Preliminaries

Outcome:

At the end of this module, you are expected to:

• Know what is estimation, central limit theory and its applications.

4
Parameter Estimation – Preliminaries

CONTENTS

• Introduction to estimation
• Central limit theorem and its applications

5
 Introduction to Estimation
The theory of estimation was founded by Prof. R.A. Fisher in a series of
fundamental papers round about 1930.

Let us consider a random sample Xl, X2 ………… Xn of size n from a

population, with probability function f(x ; Ɵ1, Ɵ2, ..., 0k). where Ɵ1, Ɵ2,
... Ɵk are the unknown population parameters. There will then always
be an infinite number of functions of sample values called statistics,
which may be proposed as estimates of one or more of the parameters.
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Introduction to Estimation
• Basic Terminologies
• Population: A group of individuals under study is called population. The
population may be finite or infinite. Eg. All the registered voters in India.
• Sample: A finite subset of statistical individuals in a population. Eg. Selecting
some voters from all registered voters.
• Parameter: The statistical constants of the population such as mean (μ),
variance (σ2) etc. Eg. Mean of income of all the registered voters.
• Statistic: The statistical constants of the sample such as mean (X̄), variance (s2)
etc. In other words, any function of the random sample x1, x2,…, xn that are
being observed say, Tn is called a statistic. Eg. Mean ofincome of selected
voters.

7
Introduction to Estimation
• Estimator: If a statistic is used to estimate an unknown parameter θ of the
distribution, then it is called an estimator. Eg. Sample mean is an estimator of
population mean.
• Estimate: A particular value of the estimator is called an estimate of an
unknown parameter. Eg. Mean income of selected voters is ₹25000 which
represents mean income of all the registered voters.
• Sampling Distribution: When the total probability is distributed according to
the value of statistic then the distribution is said to be sampling distribution.
Eg. If we want the average height of a voter, we can randomly select some of
them and use the sample mean to estimate the population mean.
• Standard Error: The standard deviation of the sampling distribution of a
statistic is known as its standard error and is denoted by ‘s.e.’ Eg. If we want to
know the variability of the height of voters, then standard error is used. 8
 Introduction to Estimation
Evidently, the best estimate would be one that falls nearest to the true value of
the parameter to be estimated.
In other words, the statistic whose distribution concentrates as closely as
possible near the true value of the parameter may be regarded the best
estimate. Hence the basic problem of the estimation in the above case can be
formulated as follows:
We wish to determine the functions of the sample observations :
T1 = 1(x1> x2 .... xm) , T2 = 2 (x1> x2 .... xn) ...... Tk= k (x1> X2 ….. xn) such that
their distribution is concentrated as closely as possible near the true value of
the parameter, The estimating functions are then referred to as estimators.

9
 Central Limit Theorem
• Central Limit Theorem (CLT) enables you to measure how much the means
of various samples vary without having to use other sample means as a
comparison.
• The CLT reveals exactly what the shape of the mean distribution will be
when repeated samples are drawn from a given population. More
specifically, as sample sizes become larger, the mean distribution that is
measured from repeated sampling will reach the normal limits.
• So, you can use your data to answer questions about specific populations
like:
 What is the mean employee income for the entire enterprise?
 These insights indicate that 65% of all promotional codes in our
businesses codes go unused. Is this true?
10
 Central Limit Theorem
The central limit theorem in the mathematical theory of probability may be
expressed as follows:
If Xi , (i = 1, 2, ... , n), be independent random variables such that
E (Xi) .. μi and V (Xi) = 𝜎2, then it can be proved that under certain very general
conditions, the random variable Sn = Xl + X2 + ... + Xn", is asymptotically normal
with mean μ and standard deviation 𝜎 where
μ = σ𝑛𝑖=1 μ𝑖 and 𝜎2 = σ𝑛𝑖=1 𝜎2𝑖

This theorem was first stated by Laplace in 1812 and a rigorous proof under
fairly general conditions was given by Liapounoff in 1901.
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 Central Limit Theorem
Central limit theorem can be expected in the following cases:
(i) If a certain random variable X arises as cumulative effect of several
independent causes each of which can be considered as a continuous random
variable, then X obeys central limit theorem under certain regularity conditions.
(ii) If ɸ (Xl, X2, … , Xn), is a function of Xi having first and second continuous
derivatives about the point (μ1, μ2, ... , μn), then under certain regularity
conditions, ɸ (Xl, X2, ... , Xn) is asymptotically normal with mean
ɸ (μ1, μ2, ... , μn).
(iii) Under certain conditions, the central limit theorem holds for variables
which are not independent.

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 Central Limit Theorem
• For the purpose of applying the Central Limit
How Large Should n Be? Theorem, we will consider a sample size to be
large when n > 30.
Baseball Salaries
600
500
490 ← Even if the population from
400 ← which the sample is selected
Frequency

← looks like this …

300
200
102
53 72
100 35 21 26 17 8 10 2 3 1 0 0 1
0

Salary ($1,000's)

… the Central Limit Theorem

→
tells us that a good model for
→
the sampling distribution of
→
the sample mean x is …
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Central Limit Theorem
Population: mean ; stand dev. ; shape of population dist. is unknown;
value of  is unknown; select random sample of size n;
Sampling distribution of x:
mean ; stand. dev. /n;
always true!
By the Central Limit Theorem:
the shape of the sampling distribution is approx normal, that is
x ~ N(, /n)

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Central Limit Theorem

• If x “successes” occur in a random sample of n observations selected from

a population (any population), then when n is sufficiently large, the
sampling distribution of p =x/n will be approximately normal.
(The larger the sample size, the better will be the normal approximation to
the sampling distribution of p.)

15
 Central Limit Theorem
• When we select simple random samples of size n from a population with
“success” probability p and observe x “successes”, the sample
proportions p =x/n will vary from sample to sample. We can model the
distribution of these sample proportions with a probability model that
is…

 p(1  p) 
N  p, 
 n 

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 Central Limit Theorem
How Large Should n Be?
• For the purpose of applying the central limit theorem, we will consider a sample
size n to be large when np ≥ 10 and n(1-p) ≥ 10
Population, "success" proportion = p
0.7
p __ ← If the population from which
0.6

0.5
p
← the sample is selected looks
0.4 ← like this …
0.3 1-p
0.2

0.1

0
0 1
… the Central Limit Theorem
→
tells us that a good model for
→
the sampling distribution of
→
the sample proportion is
… pˆ  nx 17
Central Limit Theorem
Population Parameters and Sample Statistics
Sample • The value of a population
Population statistic parameter is a fixed number, it
Value
parameter used to is NOT random; its value is not
estimate known.
p • The value of a sample statistic
proportion of is calculated from sample data
Unknown p̂
population
with a certain
• The value of a sample statistic
characteristic will vary from sample to
sample (sampling
µ distributions)
mean value
of a Unknown x
population
variable
Application of CTL
Application 1:-
A random sample of n =64 observations is
drawn from a population with mean
 =15 and standard deviation  =4.
SD( X ) 4
a. E ( X )    15; SD( X )    0.5
n 8
b. The shape of the sampling distribution
model for x is approx. normal (by the CLT)
with mean E(X)  15 and SD( X )  0.5 (The
answer depends on the sample size n
since SD( X )  SD ( X )
n
 4
64
 84  0.5)

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Application of CTL

c. x  15.5;
x 
z SD ( X )
 15.5.515  .5.5  1
This means that x =15.5 is one standard
deviation above the mean   E ( X )  15
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Application of CTL
Application 2:-
• The probability distribution of 6-month incomes of account
executives has mean $20,000 and standard deviation
$5,000.
• a) A single executive’s income is $20,000. Can it be said that
this executive’s income exceeds 50% of all account executive
incomes?
ANSWER No. P(X<$20,000)=? No information given about
shape of distribution of X; we do not know the median of 6-
month incomes.
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 Application of CTL
• b) n=64 account executives are randomly selected. What is the probability
that the sample mean exceeds $20,500?
answer E(X) = $20, 000
SD(X) = $5, 000
E ( X )  $20, 000
SD ( X )    625
SD ( x ) 5,000
n 64

By CLT, X ~ N (20, 000, 625)

P ( X  20, 500) 
P X  20,000
625
 20,500  20,000
625

P ( z  .8)  1  .7881  .2119 22
Introduction to Estimation
Self Assessment Question
1. Who founded the theory of estimation?

A. R.A. Fisher
B. James Ghosling
C. De-Moivre's-Laplace
D. None of above

Answer: A

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Introduction to Estimation
Self Assessment Question
2. CTL means.

A. Central Transmit Library

B. Central Limit Theory
C. None of the above

Answer: B

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Introduction to Estimation
Self Assessment Question
3. By the Central Limit Theorem:
the shape of the sampling distribution is approx normal, that is
x ~ N(, /n)
A. True
B. False

Answer: A

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Introduction to Estimation

Assignment
1. A distribution with unknown mean μ has variance equal to 1·5. Use
central limit theorem to find: how large a sample should be taken from
the distribution in order that the probability will be at least 0·95 that
the sample mean will be within 0·5 of the population mean.
2. The life time of a certain brand of an electric bulb may be considered a
random variable with mean 1,200 hours and standard deviation 250
hours. Find the probability, using central limit theorem, that ·the
average life-time of 60 bulbs exceeds 1,400,houIS.
3. Write a note on the role of Central Limit Theorem in Statistics.

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Introduction to Estimation
Summary
 The theory of estimation was founded by Prof. R.A. Fisher in a series of fundamental papers round about 1930.
 Central Limit Theorem (CLT) enables you to measure how much the means of various samples vary without
having to use other sample means as a comparison
 This theorem was first stated by Laplace in 1812 and a rigorous proof under fairly general conditions was given
by Liapounoff in 1901.
 By the Central Limit Theorem: the shape of the sampling distribution is approx normal, that is
x ~ N(, /n)

27
Introduction to Estimation
Document Links
Topics URL Notes
https://stepupanalytics.com/theory-of-
Introduction to Estimation This link explains estimation in detail
estimation-or-what-is-estimation/

https://www.researchoptimus.com/article/centr
Central Limit Theorem This link Central Limit Theorem
al-limit-theorem.php

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Introduction to Estimation
Video Links

Topics URL Notes

https://www.youtube.com/watch?v=ySXJwrXjgd
What is an estimation? This video explains about estimation?
k

https://www.youtube.com/watch?v=JNm3M9cq
Central limit Theorem This video explains the central limit theorem
Wyc

https://www.youtube.com/watch?v=lCZUcFtigq
Central limit theorem applications This video explains the central limit theorem applications
M

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Introduction to Estimation
E-Book Links

E-Book Name Chapter Page Number URL Comments

https://www.academia.edu/31552250/
Introduction to estimation . Chapter 15 Page No: 15.1 FUNDAMENTALS_OF_MATHEMATICAL_ Explains Introduction to estimation
STATISTICS

https://www.academia.edu/31552250/
Central limit Theorem . Chapter 8 Page No: 8.105 FUNDAMENTALS_OF_MATHEMATICAL_ Explains the Central Limit Theorem
STATISTICS

https://www.academia.edu/31552250/
Applications of Central Limit Theorem . Chapter 8 Page No: 8.108 FUNDAMENTALS_OF_MATHEMATICAL_ Discusses Applications of CTL
STATISTICS

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