1 Point Estimates of the Population Mean

4 POINT ESTIMATES OF THE POPULATION MEAN

f identify and describe desirable properties of an estimator

Statistical inference traditionally consists of two branches, hypothesis testing and
estimation. Hypothesis testing addresses the question “Is the value of this parameter
(say, a population mean) equal to some specific value (0, for example)?” In this process,
we have a hypothesis concerning the value of a parameter, and we seek to determine
whether the evidence from a sample supports or does not support that hypothesis.
The topic of hypothesis testing will be discussed later.
The second branch of statistical inference, and what we focus on now, is estimation.
Estimation seeks an answer to the question “What is this parameter’s (for example,
the population mean’s) value?” In estimating, unlike in hypothesis testing, we do not
start with a hypothesis about a parameter’s value and seek to test it. Rather, we try
to make the best use of the information in a sample to form one of several types of
estimates of the parameter’s value. With estimation, we are interested in arriving
at a rule for best calculating a single number to estimate the unknown population
parameter (a point estimate). In addition to calculating a point estimate, we may also
be interested in calculating a range of values that brackets the unknown population
parameter with some specified level of probability (a confidence interval). We first
discuss point estimates of parameters and then turn our attention to the formulation
of confidence intervals for the population mean.

4.1 Point Estimators

An important concept introduced here is that sample statistics viewed as formulas
involving random outcomes are random variables. The formulas that we use to
compute the sample mean and all the other sample statistics are examples of esti-
mation formulas or estimators. The particular value that we calculate from sample
observations using an estimator is called an estimate. An estimator has a sampling
distribution; an estimate is a fixed number pertaining to a given sample and thus has
no sampling distribution. To take the example of the mean, the calculated value of the
sample mean in a given sample, used as an estimate of the population mean, is called
a point estimate of the population mean. As we have seen earlier, the formula for
the sample mean can and will yield different results in repeated samples as different
samples are drawn from the population.

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Point Estimates of the Population Mean 2

In many applications, we have a choice among a number of possible estimators

for estimating a given parameter. How do we make our choice? We often select esti-
mators because they have one or more desirable statistical properties. Following is
a brief description of three desirable properties of estimators: unbiasedness (lack of
bias), efficiency, and consistency.
■■ Unbiasedness. An unbiased estimator is one whose expected value (the mean
of its sampling distribution) equals the parameter it is intended to estimate.
For example, as shown in Exhibit 10 of the sampling distribution of the sample
mean, the expected value of the sample mean, X , equals μ, the population mean, so
we say that the sample mean is an unbiased estimator (of the population mean). The
sample variance, s2, calculated using a divisor of n − 1 (Equation 3), is an unbiased
estimator of the population variance, σ2. If we were to calculate the sample variance
using a divisor of n, the estimator would be biased: Its expected value would be smaller
than the population variance. We would say that sample variance calculated with a
divisor of n is a biased estimator of the population variance.

Exhibit 10  Unbiasedness of an Estimator

–
X=μ

Whenever one unbiased estimator of a parameter can be found, we can usually find
a large number of other unbiased estimators. How do we choose among alternative
unbiased estimators? The criterion of efficiency provides a way to select from among
unbiased estimators of a parameter.
■■ Efficiency. An unbiased estimator is efficient if no other unbiased estimator of
the same parameter has a sampling distribution with smaller variance.
To explain the definition, in repeated samples we expect the estimates from an
efficient estimator to be more tightly grouped around the mean than estimates from
other unbiased estimators. For example, Exhibit 11 shows the sampling distributions
of two different estimators of the population mean. Both estimators A and B are
unbiased because their expected values are equal to the population mean (
X A  X B  ), but estimator A is more efficient because it shows smaller variance.
Efficiency is an important property of an estimator. Sample mean X is an efficient
estimator of the population mean; sample variance s2 is an efficient estimator of σ2.
3 Point Estimates of the Population Mean

Exhibit 11  Efficiency of an Estimator

– –
XA = XB = μ

Recall that a statistic’s sampling distribution is defined for a given sample size.
Different sample sizes define different sampling distributions. For example, the vari-
ance of sampling distribution of the sample mean is smaller for larger sample sizes.
Unbiasedness and efficiency are properties of an estimator’s sampling distribution
that hold for any size sample. An unbiased estimator is unbiased equally in a sample
of size 100 and in a sample of size 1,000. In some problems, however, we cannot find
estimators that have such desirable properties as unbiasedness in small samples. In this
case, statisticians may justify the choice of an estimator based on the properties of the
estimator’s sampling distribution in extremely large samples, the estimator’s so-­called
asymptotic properties. Among such properties, the most important is consistency.
■■ Consistency. A consistent estimator is one for which the probability of esti-
mates close to the value of the population parameter increases as sample size
increases.
Somewhat more technically, we can define a consistent estimator as an estimator
whose sampling distribution becomes concentrated on the value of the parameter it
is intended to estimate as the sample size approaches infinity. The sample mean, in
addition to being an efficient estimator, is also a consistent estimator of the population
mean: As sample size n goes to infinity, its standard error, σ n , goes to 0 and its
sampling distribution becomes concentrated right over the value of population mean,
µ. Exhibit 12 illustrates the consistency of the sample mean, in which the standard
error of the estimator narrows as the sample size increases. To summarize, we can
think of a consistent estimator as one that tends to produce more and more accurate
estimates of the population parameter as we increase the sample’s size. If an estimator
is consistent, we may attempt to increase the accuracy of estimates of a population
parameter by calculating estimates using a larger sample. For an inconsistent estimator,
however, increasing sample size does not help to increase the probability of accurate
estimates.
Point Estimates of the Population Mean 4

Exhibit 12  Consistency of an Estimator

n = 1,000

n = 10

–
X=μ

It is worth noting that in a Big Data world, consistency is much more crucial
than efficiency, because the accuracy of a population parameter’s estimates can be
increasingly improved with the availability of more sample data. In addition, given a
big dataset, a biased but consistent estimator can offer considerably reduced error. For
example, s 2/n is a biased estimator of variance. As n goes to infinity, the distinction
between s 2/n and the unbiased estimator s2/(n − 1) diminish to zero.

EXAMPLE 7 
Exhibit 13 plots several sampling distributions of an estimator for the population
mean, and the vertical dash line represents the true value of population mean.
Which of the following statements best describes the estimator’s properties?
A The estimator is unbiased.
B The estimator is biased and inconsistent.
C The estimator is biased but consistent.
5 Point Estimates of the Population Mean

Exhibit 13  Sampling Distributions of an Estimator

n = 1,000

n = 200

n = 50

Solution:
C is correct. The chart shows three sampling distributions of the estimator at
different sample sizes (n = 50, 200, and 1,000). We can observe that the means of
each sampling distribution—that is, the expected value of the estimator—devi-
ates from the population mean, so the estimator is biased. As the sample size
increases, however, the mean of the sampling distribution draws closer to the
population mean with smaller variance. So, it is a consistent estimator.