Maximum Likelihood – Bias in Maximum Likelihood Estimator for Exponential Distribution

biasexponential distributionmaximum likelihood

The maximum likelihood estimator of an exponential distribution $f(x, \lambda) = \lambda e^{-\lambda x}$ is $\lambda_{MLE} = \frac {n} {\sum x_i}$; I know how to derive that by find the derivative of the log likelihood and setting equal to zero.

I then read in an online article that "Unfortunately this estimator is clearly biased since $<\sum_i x_i>$ is indeed $1/\lambda$ but $<1/\sum_i x_i > \neq \lambda$."

Why does $<\sum_i x_i> = 1/\lambda$? If I am correct in deducing the $< >$ operator means expected value, then I thought $E(x_i) = 1/\lambda$ – that is, the expected value of one such $x_i$, is $1/\lambda$, not the sum of all $x_i$'s. And can someone explain the second of the statement and how these two statements demonstrate the MLE is biased?

Best Answer

I cannot speak as to the use of these symbols but let me show you instead the traditional way, why the mle is biased.

Recall that the exponential distribution is a special case of the General Gamma distribution with two parameters, shape $a$ and rate $b$. The pdf of a Gamma Random Variable is:

$$f_Y (y)= \frac{1}{\Gamma(a) b^a} y^{a-1} e^{-y/b}, \ 0<y<\infty$$

where $\Gamma (.)$ is the gamma function. Alternative parameterisations exist, see for example the wikipedia page.

If you put $a=1$ and $b=1/\lambda$ you arrive at the pdf of the exponential distribution:

$$f_Y(y)=\lambda e^{-\lambda y},0<y<\infty$$

One of the most important properties of a gamma RV is the additivity property, simply put that means that if $X$ is a $\Gamma(a,b)$ RV, $\sum_{i=1}^n X_i$ is also a Gamma RV with $a^{*}=\sum a_i$ and $b^{*}=b$ as before.

Define $Y=\sum X_i$ and as noted above $Y$ is also a Gamma RV with shape parameter equal to $n$, $\sum_{i=1}^n 1 $, that is and rate parameter $1/\lambda$ as $X$ above. Now take the expectation $E[Y^{-1}]$

$$ E\left [ Y^{-1} \right]=\int_0^{\infty}\frac{y^{-1}y^{n-1}\lambda^n}{\Gamma(n)}\times e^{-\lambda y}dy=\int_0^{\infty}\frac{y^{n-2}\lambda^n}{\Gamma(n)}\times e^{-\lambda y}dy$$

Comparing the latter integral with an integral of a Gamma distribution with shape parameter $n-1$ and rate one $1/\lambda$ and using the fact that $\Gamma(n)=(n-1) \times \Gamma(n-1)$ we see that it equals $\frac{\lambda}{n-1}$. Thus

$$E\left[ \hat{\theta} \right]=E\left[ \frac{n}{Y} \right]=n \times E\left[Y^{-1}\right]=\frac{n}{n-1} \lambda$$

which clearly shows that the mle is biased. Note, however, that the mle is consistent. We also know that under some regularity conditions, the mle is asymptotically efficient and normally distributed, with mean the true parameter $\theta$ and variance $\{nI(\theta) \}^{-1} $. It is therefore an optimal estimator.

Does that help?