Lecture22 - 55 Lecture 22 - Statistical inference 1) We...

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55 Lecture 22 - Statistical inference 1) We have learned how to calculate estimators , and we have discovered what their PDF is. Now we must return to the original purpose for finding estimators. After all, what we really want to know are the true values of the parameters . What we want to learn how to do now is to use these estimators to make inferences concerning the true parameter values . This is known as statistical inference . There are two kinds of operations one can perform in statistical inference . The first is to create what is known as a confidence interva l . A confidence interval is simply a range of values within which we have a certain level of confidence that the true parameter value lies. Obviously, we will have to use our estimator to form the confidence interval. The second type of operation one can perform is known as hypothesis testing . In hypothesis testing, we begin with a hypothesized value for the true parameter, and then use the estimator to ascertain whether the hypothesis can be accepted or rejected. We will look at both of these types of operations, beginning with the idea of the confidence interval. We saw last time that every estimator has a normal distribution, is unbiased, and has a variance . We may write this as: $ ~, $ BN B ii B i σ 2 e j In picture terms, we have the following: .95 .68 B B 196 . $ EB B $ ej = B B + $ B B $ B B + . $ The probabilities in the above picture are gotten from the table in the back of the text, check them out for yourself! Using the above picture, we can say the following:
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56 PB B B B B 11 1 1 1 68 −≤≤ + F H I K = σσ $ $ . $ B B B B 1 196 95 1 1 −≤ + F H I K = . $ .. $ $ Now with a little algebra, this last equation may be re-written as: B B B B $ . $ $ $ 1 95 1 1 + F H I K = Look at the last formula closely. What it says in words is that the true parameter will lie within 1.96 standard deviations of the estimated coefficient with probability =.95. We would call this a 95 percent confidence interval . It is an interval within which the true parameter value lies with a certain level of confidence, in this case with a probability =.95.
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This note was uploaded on 03/03/2011 for the course ECO 230 taught by Professor Yongjinpark during the Spring '11 term at Conn College.

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Lecture22 - 55 Lecture 22 - Statistical inference 1) We...

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