Truncated mean

This article needs additional citations for verification. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed. (July 2010)

A truncated mean or trimmed mean is a statistical measure of central tendency, much like the mean and median. It involves the calculation of the mean after discarding given parts of a probability distribution or sample at the high and low end, and typically discarding an equal amount of both. This is usually given as a percentage, but may be given as a fixed number of points.

For most statistical applications, 5 to 25 percent of the ends are discarded; the 25% trimmed mean (when the lowest 25% and the highest 25% are discarded) is known as the interquartile mean. For example, given a set of 8 points, trimming by 12.5% would discard the minimum and maximum value in the sample: the first and last values. As with other trimmed estimators, the main advantage of the trimmed mean is robustness and higher efficiency for mixed distributions and heavy-tailed distribution, at the cost of lower efficiency for some distributions, such as the normal distribution.

1 Terminology
2 Interpolation
3 Advantages
4 Drawbacks
5 Examples
6 See also
7 References

Terminology [edit]

In some regions of Central Europe it is also known as a Windsor mean, but this name should not be confused with the Winsorized mean: in the latter, the observations that the trimmed mean would discard are instead replaced by the largest/smallest of the remaining values.

Discarding only the maximum and minimum is known as the modified mean, particularly management statistics.^[1]

Interpolation [edit]

When the percentage of points to discard does not yield a whole number, the trimmed mean may be defined by interpolation, generally linear interpolation, between the nearest whole numbers. For example, if you need to calculate the 15% trimmed mean of a sample containing 10 entries, strictly this would mean discarding 1 point from each end (equivalent to the 10% trimmed mean). If interpolating, one would instead compute the 10% trimmed mean (discarding 1 point from each end) and the 20% trimmed mean (discarding 2 points from each end), and then interpolating, in this case averaging these two values. Similarly, if interpolating the 12% trimmed mean, one would take the weighted average: weight the 10% trimmed mean by 0.8 and the 20% trimmed mean by 0.2.

Advantages [edit]

The truncated mean is a useful estimator because it is less sensitive to outliers than the mean but will still give a reasonable estimate of central tendency or mean for many statistical models. In this regard it is referred to as a robust estimator.

One situation in which it can be advantageous to use a truncated mean is when estimating the location parameter of a Cauchy distribution, a bell shaped probability distribution with fatter tails than a normal distribution. It can be shown that the truncated mean of the middle 24% sample order statistics (i.e., truncate the sample by 38%) produces an estimate for the population location parameter that is more efficient than using either the sample median or the full sample mean.^[2]^[3] However, due to the fat tails of the Cauchy distribution, the efficiency of the estimator decreases as more of the sample gets used in the estimate.^[2]^[3] Note that for the Cauchy distribution, neither the truncated mean, full sample mean or sample median represents a maximum likelihood estimator, nor are any as asymptotically efficient as the maximum likelihood estimator; however, the maximum likelihood estimate is difficult to compute, leaving the truncated mean as a useful alternative.^[3]^[4]

Drawbacks [edit]

The truncated mean uses more information from the distribution or sample than the median, but unless the underlying distribution is symmetric, the truncated mean of a sample is unlikely to produce an unbiased estimator for either the mean or the median.

Examples [edit]

The scoring method used in many sports that are evaluated by a panel of judges is a truncated mean: discard the lowest and the highest scores; calculate the mean value of the remaining scores.

The Libor benchmark interest rate is calculated as a trimmed mean: given 18 response, the top 4 and bottom 4 are discarded, and the remaining 10 are averaged (yielding trim factor of $4/18 \approx 22%$ ).

References [edit]

^ Arulmozhi, G.; Statistics For Management, 2nd Edition, Tata McGraw-Hill Education, 2009, p. 458
^ ^a ^b Rothenberg, Thomas J.; Fisher, Franklin, M.; Tilanus, C.B. (1966). "A note on estimation from a cauchy sample". Journal of the American Statistical Association 59: 460–463.
^ ^a ^b ^c Bloch, Daniel (1966). "A note on the estimation of the location parameters of the Cauchy distribution". Journal of the American Statistical Association 61 (316): 852–855. JSTOR 2282794.
^ Ferguson, Thomas S. (1978). "Maximum Likelihood Estimates of the Parameters of the Cauchy Distribution for Samples of Size 3 and 4". Journal of the American Statistical Association 73 (361): 211. JSTOR 2286549.

Contents