In a world full of data that seldom follows nice theoretical distributions, the Central Limit Theorem is a beacon of light. Often referred to as the cornerstone of statistics, it is an important concept to understand when performing any type of data analysis.

Motivation

Suppose that we are interested in estimating the average height among all people. Collecting data for every person in the world is impractical, bordering on impossible. While we can’t obtain a height measurement from everyone in the population, we can still sample some people. The question now becomes, what can we say about the average height of the entire population given a single sample.

The Central Limit Theorem addresses this question exactly. Formally, it states that if we sample from a population using a sufficiently large sample size, the mean of the samples (also known as the sample population) will be normally distributed (assuming true random sampling). What’s especially important is that this will be true regardless of the distribution of the original population.

When I first read this description I did not completely understand what it meant. However, after visualizing a few examples it become more clear. Let’s look at an example of the Central Limit Theorem in action.

Example

Suppose we have the following population distribution.

I manually generated the above population by choosing numbers between 0 and 100, and plotted it as a histogram. The height of the histogram denotes the frequency of the number in the population. As we can see, the distribution is pretty ugly. It certainly isn’t normal, uniform, or any other commonly known distribution.

In order to sample from the above distribution, we need to define a sample size, referred to as N. This is the number of observations that we will sample at a time. Suppose that we choose N to be 3. This means that we will sample in groups of 3. So for the above population, we might sample groups such as [5, 20, 41], [60, 17, 82], [8, 13, 61], and so on.

Suppose that we gather 1,000 samples of 3 from the above population. For each sample, we can compute its average. If we do that, we will have 1,000 averages. This set of 1,000 averages is called a sampling distribution, and according to Central Limit Theorem, the sampling distribution will approach a normal distribution as the sample size N used to produce it increases. Here is what our sample distribution looks like for N = 3.

As we can see, it certainly looks uni-modal, though not necessarily normal. If we repeat the same process with a larger sample size, we should see the sampling distribution start to become more normal. Let’s repeat the same process again with N = 10. Here is the sampling distribution for that sample size.

This certainly looks more normal, and if we repeated this process one more time for N = 30 we observe this result.

The above plots demonstrate that as the sample size N is increased, the resultant sample mean distribution becomes more normal. Further, the distribution variance also decreases. Keep in mind that the original population that we are sampling from was that weird ugly distribution above.

Further Intuition

When I first saw an example of the Central Limit Theorem like this, I didn’t really understand why it worked. The best intuition that I have come across involves the example of flipping a coin. Suppose that we have a fair coin and we flip it 100 times. If we observed 48 heads and 52 tails we would probably not be very surprised. Similarly, if we observed 40 heads and 60 tails, we would probably still not be very surprised, though it might seem more rare than the 48/52 scenario. However, if we observed 20 heads and 80 tails we might start to question the fairness of the coin.

This is essentially what the normal-ness of the sample distribution represents. For the coin example, we are likely to get about half heads and half tails. Outcomes farther away from the expected 50/50 result are less likely, and thus less expected. The normal distribution of the sampling distribution captures this concept.

The mean of the sampling distribution will approximate the mean of the true population distribution. Additionally, the variance of the sampling distribution is a function of both the population variance and the sample size used. A larger sample size will produce a smaller sampling distribution variance. This makes intuitive sense, as we are considering more samples when using a larger sample size, and are more likely to get a representative sample of the population. So roughly speaking, if the sample size used is large enough, there is a good chance that it will estimate the population pretty well. Most sources state that for most applications N = 30 is sufficient.

These principles can help us to reason about samples from any population. Depending on the scenario and the information available, the way that it is applied may vary. For example, in some situations we might know the true population mean and variance, which would allow us to compute the variance of any sampling distribution. However, in other situations, such as the original problem we discussed of estimating average human height, we won’t know the true population mean and variance. Understanding the nuances of sampling distributions and the Central Limit Theorem is an essential first step toward talking many of these problems.

Additional Resources

I found the Khan Academy videos on Central Limit Theorem to be especially helpful.

If you would like to play around with sampling distributions, I have put some Central Limit Theorem demo code on GitHub.

