More on Mean and Variance of a population Number of ( observations 1 2 3 4 5 6 1 2 3 4 5 6 1/6 1/6 1/6 1/6 1/6 1/6 1/6 2/6

3/6 4/6 5/6 6/6 1/6 1/6 1/6 1/6 1/6 1/6

is the referred to as the expected value Notice that the mean is calculated here as the weighted mean of all possible outcomes in which the weights are respective probabilities of those outcome.

Sampling distribution Population is too large to study. Economists are interested in selecting a representative sample of a manageable size. The sample is used to provide conclusion about the population. The estimate is as an estimator of the parameter. Inferential statistics entails using a statistic to provide inferences or conclusions about the parameter. The value of the statistic depends on the sample taken. From any population of size N, samples of size n are withdrawn. Each sample may have different mean. It is possible to get an entire distribution of from the possible samples. Illustrative simple example: a population of 4 students whose incomes are $100, $200, $300, and $400. The mean income . Instead, a sample of n=2 observations is taken to

estimate the unknown . The following table shows the six possible samples: Sample 1 2 3 4 5 6 Sample Elements 100, 200 100,300 100,400 200,300 200,400 300,400 Sample Means 150 200 250 250 300 350

Sampling Error: is the difference between the population mean, i.e., the sampling error is ( Sample Means 150 200 250 300 350 Number of Samples yielding 1 1 2 1 1

and the sample mean, ;

Probability 1/6 1/6 2/6 1/6 1/6

Sampling Distribution is the list of all possible values for a statistic and the probability associated with each value. The sampling distribution of sample means is a list of all possible sample means. The Mean of the Sample Means The mean of the sample means is referred to as the grand mean. It is calculated using the same formula for a mean, where the sample means are treated as observations and summed up then divided by the number of samples.

 Notice

is the number of observations in the population.

in this example in this example

is the number of observations in a sample (sample size). is the number of samples. in this example

Notice that in this case the mean of the sampling distribution, , equals the mean of the original population; of estimators. . More elaboration will be provided when covering the good properties

The Variance and the Standard Error of the Sampling Distribution The distribution of the sample means has a variance, which is calculated using the usual variance formula is a measure of the dispersion of sample means around the grand mean.

The square root of the variance in the distribution of sample means is the standard error of the sampling distribution.

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The standard error is a measure of the dispersion of the sample mean around . Standard deviation measures the dispersion of individual observations around their mean. Standard error measures the tendency for the sample mean to deviate from . It reflects the tendency to suffer error in estimating . Properties of Good Estimators An estimator is the rule used to derive the estimate (statistic). An estimator is expressed by the formula and the estimate is the numerical result of the estimator. For example, if

is the estimator and 20 is the estimate.

To reach reliable results, estimators must satisfy the properties of good estimators. Estimators must be unbiased, efficient, and consistent. An Unbiased Estimator An estimator is unbiased if the mean of the statistic calculated from all the samples equal the corresponding parameter.

is an unbiased estimator of

because the mean of the sampling distribution of sample

means, , equals . An estimator is unbiased if the mean of the sampling distribution equals the corresponding parameter.

 is an unbiased estimator of , because ( ) .

and the distribution is centered around the

The unbiasdness property involves repeated sampling: if many different samples are taken yielding different values for unbiased estimator of . On the other hand, if many samples are taken yielding different values for , where is a biased estimator of . ( ) ( ) unbiased estimator biased estimator , . The mean of the different would be . ( ) and is an