What is Estimation?

Estimation is the process of finding an estimate, or approximation, which is a value that is usable for some purpose even if input data may be incomplete, uncertain, or unstable. The value is nonetheless usable because it is derived from the best information available. Typically, estimation involves “using the value of a statistic derived from a sample to estimate the value of a corresponding population parameter”. The sample provides information that can be projected, through various formal or informal processes, to determine a range most likely to describe the missing information. An estimate that turns out to be incorrect will be an overestimate if the estimate exceeded the actual result or an underestimate if the estimate fell short of the actual result. Estimation is often done by sampling, which is counting a small number of examples and projecting that number onto a larger population. Estimates can similarly be generated by projecting results from polls or surveys onto the entire population. Estimation is important in business and economics because too many variables exist to figure out how large-scale activities will develop.