When we talk about estimators in finance, we are referring to a statistical tool used to estimate a population parameter. But how accurate are these estimators? That's where the concept of bias comes in. Bias is the discrepancy between the expected value of an estimator and the true value it is trying to estimate. So, when we use an estimator, we must be aware of its potential for bias and take it into consideration while interpreting the results. This is a crucial concept in finance and understanding it can greatly improve our decision-making process.
