Econ 140

Inference about a Mean

Lecture 5

Lecture 5 1
Todays Plan Econ 140

Start to explore more concrete ideas of statistical inference

Look at the process of generalizing from the sample mean
to the population value
Consider properties of the sample mean Y as a point
estimator
Properties of an estimator: BLUE (Best Linear Unbiased
Estimator)

Lecture 5 2
Sample and Population Differences Econ 140

So far weve seen how weights connect a sample and a

population
But what if all we have is a sample without any weights?
What can the estimation of the mean tell us?
We need the sample to be composed of independently
random and identically drawn observations

Lecture 5 3
Estimating the Expected value Econ 140

Weve dealt with the expected value y=E(Y) and the

variance V(Y) = 2
Previously, our estimation of the expected value of the
mean Y was
Y Y
n

But this is only a good estimate of the true expected

value if the sample is an unbiased representation of the
population
What does the actual estimator tell us?

Lecture 5 4
BLUE Econ 140

We need to consider the properties of Y as a point

estimator of

Three properties of an estimator : BLUE

Best (efficiency)
Linearity
Unbiasedness
(also Consistency)

Well look at linearity first, then unbiasedness and

efficiency

Lecture 5 5
BLUE: Linearity Econ 140

Y is a linear function of sample observations

n
Yi
Y Y ...Yn
Y i 1 1 2
n n

The values of Y are added up in a linear fashion such that

all Y values appear with weight equal

Lecture 5 6
BLUE: Unbiasedness Econ 140

Proving that is an unbiased estimator of the expected value of

Y
We can rewrite the equation for

Y
n
Yi
where ci 1
Y i 1 ciYi n
n
This expression says that each Y has an equal weight of
1/n
Since ci is a constant, the expectation of Y is
1
E (Y ) ci E (Y ) ci ( ) n
n

Lecture 5 7
Proving Unbiasedness
Econ 140

Lets examine an estimator that is biased and inefficient

We can define some other estimator m as
m ciYi
where di ci 'ci
ci ' ci di

We can then plug the equation for c into the equation for
m and take its expectation
The expected value of this new estimator m is biased if
di 0

Lecture 5 8
BLUE: Best (Efficiency) Econ 140

To look at efficiency, we want to consider the variance of Y

We can redefine Y as Y ciY

Our variance can be written as

V (Y ) ci2V (Y ) h j chc j C (YhY j )
Where the last term is the covariance term
Covariance cancels out because we are assuming that
the sample was constructed under independence. So
there should be no covariance between the Y values
C (YhY j ) 0
Note: well see later in the semester that covariance
will not always be zero
Lecture 5 9
BLUE: Best (Efficiency) (2) Econ 140

So how did we get the equation for the variance of Y ?

V (Y ) 2
2
V (Y ) 2 2
i
c
n
Yi 2
i 1 1
V Y V 2 V (Yi ) 2
2
n
n n i n n

Lecture 5 10
Variance Econ 140

Our expression for variance shows that the variance of is dependent on the sample size n
How is this different from the variance of Y? Y

2
n

Y
y Y

Lecture 5 11
Variance (2) Econ 140

Before when we were considering the distribution around

y we were considering the distribution of Y
Now we are considering Y as a point estimator for y
The estimate for Y will have its own probability
distribution much like Y had its own
The difference is that the distribution for Y has a
variance of 2/n whereas Y has a variance of 2

Lecture 5 12
Proving Efficiency
Econ 140

The variance of m looks like this

V(m) = ici2V(Y) + hichciC(YhYi)

Why is this not the most efficient estimate?

We have an inefficient estimator if we use anything other

than ci for weights

Lecture 5 13
Consistency Econ 140

This isnt directly a part of BLUE

The idea is that an optimal estimator is best, linear, and
unbiased
But, an estimator can be biased or unbiased and still be
consistent

Consistency means that with repeated sampling, the

estimator tends to the same value for Y

Lecture 5 14
Consistency (2) Econ 140

We write our estimator of as

Y Y
n
We can write a second estimator of

Y* Y
n
The expected value of Y* is
1
E (Y ) E (Y1) ... E (Yn )
n 1
1
1 ... n n
n 1 n 1
Lecture 5 15
Consistency (3) Econ 140

If n is small, say 10,

n 10

n 1 11
Y* will be a biased estimator of
But, Y* will be a consistent estimator
So as n approaches infinity Y* becomes an unbiased
estimator of

Lecture 5 16
Law of Large Numbers Econ 140

Think of this picture:

As you draw samples of
PDF larger and larger size, the
law of large numbers
says that your estimation
n=500 of the sample mean will
become a better
n=1000
n=200 n=50 approximation of y

Y
The law only hold if you are drawing random samples

Lecture 5 17
Central Limit Theorem Econ 140

Even if the underlying population is not normally

distributed, the sampling distribution of the mean tends to
normality as sample size increases
This is an important result if n < 30

PDF

Population

Sample

Y
Lecture 5 18
What have we done today? Econ 140

Examined the properties of an estimator.

Estimator was for the estimation of a value for an unknown
population mean.
Desirable properties are BLUE: Best Linear Unbiased.
Also should include consistency.

Lecture 5 19