Β· Economics  Β· 1 min read

Sample Variance

Why do we divide by n-1 when calculating the sample standard deviation?

Why do we divide by n-1 when calculating the sample standard deviation?

For a shorter proof, here are a few things we need to know: x1,x2,x3,⋯ ,xnx_{1}, x_{2},x_{3}, \cdots, x_{n} are independent observations from a population with mean ΞΌ\mu and variance Οƒ2\sigma^{2}. E[xi]=ΞΌ,V(xi)=Οƒ2.E[x_{i}]=\mu, V(x_{i})=\sigma^2. E[xi2]=Οƒ2+ΞΌ2.E[x_{i}^2]=\sigma^{2}+\mu^{2}. V(X)=E[X2]βˆ’E[X]2V(X)=E[X^{2}]-E[X]^{2} E[XΛ‰2]=ΞΌ2+Οƒ2nE \left[ \bar{X}^{2} \right] =\mu^{2} + \frac{\sigma^{2}}{n}

The sample variance is defined as follows: S2=1nβˆ’1βˆ‘i=1n(xiβˆ’XΛ‰)2,S^{2}=\frac{1}{n-1}\sum_{i=1}^{n}(x_{i}-\bar{X})^2, where XΛ‰\bar{X} is the sample mean.

On the right hand side of equation,

βˆ‘i=1n(xiβˆ’XΛ‰)2=x12+x22+x32+β‹―+xnβˆ’12+xn2βˆ’2XΛ‰(x1+x2+x3+β‹―+xnβˆ’1+xn)+nXΛ‰2.\sum_{i=1}^{n}(x_{i}-\bar{X})^{2}= x_{1}^{2} + x_{2}^{2} + x_{3}^{2} + \cdots + x_{n-1}^{2} + x_{n}^{2} -2 \bar{X}(x_{1} + x_{2} + x_{3} + \cdots + x_{n-1} + x_{n}) + n \bar{X}^{2} .

If we take the expectation value on the right hand side,

E[βˆ‘i=1n(xiβˆ’XΛ‰)2]=E[x12]+E[x22]+E[x32]+β‹―+E[xn2]βˆ’2E[XΛ‰β‹…nXΛ‰]+nE[XΛ‰2]=E[x12]+E[x22]+E[x32]+β‹―+E[xn2]βˆ’nE[XΛ‰2]=n(ΞΌ2+Οƒ2)βˆ’n(ΞΌ2+Οƒ2n)=(nβˆ’1)Οƒ2.\begin{align} E \left[ \sum_{i=1}^{n}(x_{i}-\bar{X})^{2} \right] =&E\left[ x_{1}^{2} \right] + E\left[ x_{2}^{2} \right] + E\left[ x_{3}^{2} \right] + \cdots + E\left[ x_{n}^{2} \right] -2 E \left[ \bar{X}\cdot n\bar{X} \right] + nE \left[ \bar{X}^{2} \right]\\ = & E\left[ x_{1}^{2} \right] + E\left[ x_{2}^{2} \right] + E\left[ x_{3}^{2} \right] + \cdots + E\left[ x_{n}^{2} \right] - n E \left[ \bar{X}^{2} \right] \\ \\ = & n(\mu^{2}+ \sigma^{2}) - n(\mu^{2} + \frac{\sigma^{2}}{n}) \\ \\ = & (n-1)\sigma^{2}. \end{align} βˆ΄Οƒ2=1nβˆ’1E[βˆ‘i=1n(xiβˆ’XΛ‰)2]=E[S2].\therefore \sigma^{2} = \frac{1}{n-1}E \left[ \sum_{i=1}^{n}(x_{i}-\bar{X})^{2} \right] = E[S^{2}].
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