Chapter 8

Confidence Interval
Estimation

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 1

Objectives

▪ In this chapter, you learn:

▪ To construct and interpret confidence interval estimates
for the population mean and the population proportion
▪ To determine the sample size necessary to develop a
confidence interval for the population mean or
population proportion

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 2

Chapter Outline
Content of this chapter
◼ Confidence Intervals for the Population
Mean, μ
◼ when Population Standard Deviation σ is Known
◼ when Population Standard Deviation σ is Unknown
◼ Confidence Intervals for the Population
Proportion, π
◼ Determining the Required Sample Size

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 3

Point and Interval Estimates
DCOVA

◼ A point estimate is a single number,

◼ a confidence interval provides additional
information about the variability of the estimate

Lower Upper
Confidence Confidence
Point Estimate Limit
Limit
Width of
confidence interval

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 4

Point Estimates
DCOVA

We can estimate a with a Sample

Population Parameter … Statistic
(a Point Estimate)

Mean μ X
Proportion π p

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 5

Confidence Intervals
DCOVA

◼ How much uncertainty is associated with a

point estimate of a population parameter?

◼ An interval estimate provides more information

about a population characteristic than does a
point estimate

◼ Such interval estimates are called confidence

intervals

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 6

Confidence Interval Estimate
DCOVA

◼ An interval gives a range of values:

◼ Takes into consideration variation in sample
statistics from sample to sample
◼ Based on observations from 1 sample
◼ Gives information about closeness to
unknown population parameters
◼ Stated in terms of level of confidence
◼ e.g. 95% confident, 99% confident
◼ Can never be 100% confident
Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 7
Confidence Interval Example
DCOVA

Cereal fill example

◼ Population has µ = 368 and σ = 15.

◼ If you take a sample of size n = 25 you know

◼ 368 ± 1.96 * 15 / 5 = (362.12, 373.88). 95% of the

intervals formed in this manner will contain µ.
◼ When you don’t know µ, you 25 use X to estimate µ

◼ If X = 362.3 the interval is 362.3 ± 1.96 * 15 / 5 = (356.42, 368.18) 25

◼ Since 356.42 ≤ µ ≤ 368.18 the interval based on this sample makes a

correct statement about µ.

But what about the intervals from other possible samples

of size 25?
Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 8
Confidence Interval Example (continued)
DCOVA

Lower Upper Contain

Sample # X
Limit Limit µ?
1 362.30 356.42 368.18 Yes

2 369.50 363.62 375.38 Yes

3 360.00 354.12 365.88 No

4 362.12 356.24 368.00 Yes

5 373.88 368.00 379.76 Yes

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 9

Confidence Interval Example (continued)
DCOVA

◼ In practice you only take one sample of size n

◼ In practice you do not know µ so you do not
know if the interval actually contains µ
◼ However you do know that 95% of the intervals
formed in this manner will contain µ
◼ Thus, based on the one sample, you actually
selected you can be 95% confident your interval
will contain µ (this is a 95% confidence interval)
Note: 95% confidence is based on the fact that we used Z = 1.96.

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 10

Estimation Process
DCOVA

Random Sample I am 95%

confident that
μ is between
Population Mean 40 & 60.
(mean, μ, is X = 50
unknown)

Sample

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 11

 General Formula
DCOVA

◼ The general formula for all confidence

intervals is:
Point Estimate ± (Critical Value)(Standard Error)
Where:
• Point Estimate is the sample statistic estimating the population
parameter of interest

• Critical Value is a table value based on the sampling

distribution of the point estimate and the desired confidence
level

• Standard Error is the standard deviation of the point estimate

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 12

Confidence Level
DCOVA

◼ Confidence the interval will contain

the unknown population parameter
◼ A percentage (less than 100%)

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 13

Confidence Level, (1-) (continued)
DCOVA

◼ Suppose confidence level = 95%

◼ Also written (1 - ) = 0.95, (so  = 0.05)
◼ A relative frequency interpretation:
◼ 95% of all the confidence intervals that can be
constructed will contain the unknown true parameter
◼ A specific interval either will contain or will not
contain the true parameter
◼ No probability involved in a specific interval

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 14

Confidence Intervals
DCOVA
Confidence
Intervals

Population Population
Mean Proportion

σ Known σ Unknown

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 15

Confidence Interval for μ
(σ Known) DCOVA
◼ Assumptions
◼ Population standard deviation σ is known

◼ Population is normally distributed

◼ If population is not normal, use large sample (n > 30)

◼ Confidence interval estimate:

σ
X  Z α/2
n
where X is the point estimate
Zα/2 is the normal distribution critical value for a probability of /2 in each tail
σ/ n is the standard error

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 16

Finding the Critical Value, Zα/2
DCOVA
Z α/2 = 1.96
◼ Consider a 95% confidence interval:
1 − α = 0.95 so α = 0.05

α α
= 0.025 = 0.025
2 2

Z units: Zα/2 = -1.96 0 Zα/2 = 1.96

Lower Upper
X units: Confidence Point Estimate Confidence
Limit Limit

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 17

Common Levels of Confidence
DCOVA

◼ Commonly used confidence levels are 90%,

95%, and 99%
Confidence
Confidence
Coefficient, Zα/2 value
Level
1− 
80% 0.80 1.28
90% 0.90 1.645
95% 0.95 1.96
98% 0.98 2.33
99% 0.99 2.58
99.8% 0.998 3.08
99.9% 0.999 3.27

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 18

 Intervals and Level of Confidence
DCOVA
Sampling Distribution of the Mean

/2 1– /2

x
Intervals μx = μ
extend from x1
σ x2 (1-)100%
X − Zα / 2 of intervals
n
to constructed
σ contain μ;
X + Zα / 2
n ()100% do
not.
Confidence Intervals
Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 19
Example
DCOVA

◼ A sample of 11 circuits from a large normal

population has a mean resistance of 2.20
ohms. We know from past testing that the
population standard deviation is 0.35 ohms.

◼ Determine a 95% confidence interval for the

true mean resistance of the population.

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 20

Example (continued)
DCOVA
◼ A sample of 11 circuits from a large normal
population has a mean resistance of 2.20 ohms.
We know from past testing that the population
standard deviation is 0.35 ohms.
◼ Determine a 95% confidence interval for the true
mean resistance of the population.
σ
◼ Solution: X  Zα/2
n
= 2.20  1.96 (0.35/ 11 )
= 2.20  0.2068
1.9932  μ  2.4068

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 21

Interpretation DCOVA
◼ We are 95% confident that the true mean
resistance is between 1.9932 and
2.4068 ohms
◼ Although the true mean may or may not
be in this interval, 95% of intervals formed
in this manner will contain the true mean

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 22

Confidence Intervals
DCOVA
Confidence
Intervals

Population Population
Mean Proportion

σ Known σ Unknown

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 23

Do You Ever Truly Know σ?
◼ Probably not!

◼ In virtually all real world business situations, σ is

not known.

◼ If there is a situation where σ is known then µ is

also known (since to calculate σ you need to
know µ.)

◼ If you truly know µ there would be no need to

gather a sample to estimate it.

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 24

Confidence Interval for μ
(σ Unknown)
DCOVA

◼ If the population standard deviation σ is

unknown, we can substitute the sample
standard deviation, S
◼ This introduces extra uncertainty, since S
is variable from sample to sample
◼ So we use the t distribution instead of the
normal distribution

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 25

Confidence Interval for μ
(σ Unknown) (continued)
DCOVA
◼ Assumptions
◼ Population standard deviation is unknown
◼ Population is normally distributed
◼ If population is not normal, use large sample (n > 30)
◼ Use Student’s t Distribution
◼ Confidence Interval Estimate:
S
X  tα / 2
n
(where tα/2 is the critical value of the t distribution with n -1 degrees
of freedom and an area of α/2 in each tail)

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 26

Student’s t Distribution
DCOVA

◼ The t is a family of distributions

◼ The tα/2 value depends on degrees of
freedom (d.f.)
◼ Number of observations that are free to vary after
sample mean has been calculated

d.f. = n - 1

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 27

Degrees of Freedom (df)
DCOVA
Idea: Number of observations that are free to vary
after sample mean has been calculated
Example: Suppose the mean of 3 numbers is 8.0

Let X1 = 7 If the mean of these three

Let X2 = 8 values is 8.0,
What is X3? then X3 must be 9
(i.e., X3 is not free to vary)
Here, n = 3, so degrees of freedom = n – 1 = 3 – 1 = 2
(2 values can be any numbers, but the third is not free to vary
for a given mean)
Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 28
 Student’s t Distribution
DCOVA
Note: t Z as n increases

Standard
Normal
(t with df = ∞)

t (df = 13)
t-distributions are bell-
shaped and symmetric, but
have ‘fatter’ tails than the t (df = 5)
normal

0 t
Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 29
Student’s t Table
DCOVA

Upper Tail Area

Let: n = 3
df .10 .05 .025 df = n - 1 = 2
 = 0.10
1 3.078 6.314 12.706 /2 = 0.05

2 1.886 2.920 4.303

3 1.638 2.353 3.182 /2 = 0.05

The body of the table

contains t values, not 0 2.920 t
probabilities

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 30

Selected t distribution values
DCOVA
With comparison to the Z value

Confidence t t t Z
Level (10 d.f.) (20 d.f.) (30 d.f.) (∞ d.f.)

0.80 1.372 1.325 1.310 1.28

0.90 1.812 1.725 1.697 1.645
0.95 2.228 2.086 2.042 1.96
0.99 3.169 2.845 2.750 2.58

Note: t Z as n increases

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 31

Example of t distribution confidence
interval DCOVA

A random sample of n = 25 has X = 50 and

S = 8. Form a 95% confidence interval for μ

◼ d.f. = n – 1 = 24, so t α/2 = t 0.025 = 2.0639

The confidence interval is

S 8
X  t α/2 = 50  (2.0639)
n 25

46.698 ≤ μ ≤ 53.302

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 32

Example of t distribution confidence
interval (continued)
DCOVA
◼ Interpreting this interval requires the
assumption that the population you are
sampling from is approximately a normal
distribution (especially since n is only 25).
◼ This condition can be checked by creating a:
◼ Normal probability plot or
◼ Boxplot

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 33

Confidence Intervals
DCOVA
Confidence
Intervals

Population Population
Mean Proportion

σ Known σ Unknown

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 34

Confidence Intervals for the
Population Proportion, π
DCOVA

◼ An interval estimate for the population

proportion ( π ) can be calculated by
adding an allowance for uncertainty to the
sample proportion ( p )

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 35

Confidence Intervals for the
Population Proportion, π (continued)

◼ Recall that the distribution of the sample DCOVA

proportion is approximately normal if the sample
size is large, with standard deviation

 (1−  )
σp =
n
◼ We will estimate this with sample data:

p(1− p)
n
Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 36
Confidence Interval Endpoints
DCOVA
◼ Upper and lower confidence limits for the
population proportion are calculated with the
formula

p(1 − p)
p  Z α/2
n
◼ where
◼ Zα/2 is the standard normal value for the level of confidence
desired
◼ p is the sample proportion
◼ n is the sample size
◼ Note: must have np > 5 and n(1-p) > 5
Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 37
Example
DCOVA

◼ A random sample of 100 people shows

that 25 are left-handed.
◼ Form a 95% confidence interval for the
true proportion of left-handers

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 38

Example (continued)
DCOVA

◼ A random sample of 100 people shows that 25

are left-handed. Form a 95% confidence
interval for the true proportion of left-handers.

CI = p  Z /2 p(1 − p)/n
= 25/100  1.96 0.25(0.75)/100
= 0.25  1.96(0.0433)

= 0.1651    0.3349

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 39

Interpretation
DCOVA

◼ We are 95% confident that the true percentage

of left-handers in the population is between
16.51% and 33.49%.

◼ Although the interval from 0.1651 to 0.3349

may or may not contain the true proportion,
95% of intervals formed from samples of size
100 in this manner will contain the true
proportion.

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 40

Determining Sample Size
DCOVA

Determining
Sample Size

For the For the

Mean Proportion

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 41

Sampling Error DCOVA

◼ The required sample size can be found to reach

a desired margin of error (e) with a specified
level of confidence (1 - )

◼ The margin of error is also called sampling

error
◼ the amount of imprecision in the estimate of the
population parameter
◼ the amount added and subtracted to the point
estimate to form the confidence interval

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 42

Determining Sample Size
DCOVA
Determining
Sample Size

For the
Mean Sampling error
(margin of error)

σ σ
X  Zα / 2 e = Zα / 2
n n

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 43

Determining Sample Size (continued)
DCOVA
Determining
Sample Size

For the
Mean

e = Zα / 2
σ Z / 2
2 2
Now solve
for n to get
n= 2
n e

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 44

Determining Sample Size (continued)
DCOVA

◼ To determine the required sample size for the

mean, you must know:

◼ The desired level of confidence (1 - ), which

determines the critical value, Zα/2
◼ The acceptable sampling error, e
◼ The standard deviation, σ Z / 2
2 2
n= 2
e

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 45

Required Sample Size Example
DCOVA

If  = 45, what sample size is needed to

estimate the mean within ± 5 with 90%
confidence?

Z σ 2 2
(1.645) (45) 2 2
n= 2
= 2
= 219.19
e 5

So the required sample size is n = 220

(Always round up)

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 46

If σ is unknown DCOVA

◼ If unknown, σ can be estimated when

using the required sample size formula
◼ Use a value for σ that is expected to be at
least as large as the true σ

◼ Select a pilot sample and estimate σ with

the sample standard deviation, S

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 47

 Determining Sample Size (continued)

DCOVA
Determining
Sample Size

For the
Proportion

π(1− π ) Now solve Z/2 π (1 − π )

2
e=Z for n to get n= 2
n e

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 48

 Determining Sample Size (continued)
DCOVA
◼ To determine the required sample size for the
proportion, you must know:
◼ The desired level of confidence (1 - ), which
determines the critical value, Zα/2
◼ The acceptable sampling error, e
◼ The true proportion of events of interest, π
◼ π can be estimated with a pilot sample if necessary
(or conservatively use 0.5 as an estimate of π)

Z2/2 π (1 − π )
n= 2
e
Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 49
Required Sample Size Example
DCOVA

How large a sample would be necessary

to estimate the true proportion of
defectives in a large population within
±3%, with 95% confidence?
(Assume a pilot sample yields p = 0.12)

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 50

 Required Sample Size Example
(continued)
Solution: DCOVA
For 95% confidence, use Zα/2 = 1.96
e = 0.03
p = 0.12, so use this to estimate π

Z / 2π (1 − π ) (1.96) (0.12)(1− 0.12)

2 2
n= 2
= 2
= 450.74
e (0.03)
So use n = 451

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 51

Chapter Summary
In this chapter we discussed:

◼ The construction and interpretation of

confidence interval estimates for the population
mean and the population proportion
◼ The determination of the sample size necessary
to develop a confidence interval for the
population mean or population proportion

Copyright © 2016 Pearson Education, Ltd. Chapter 8, Slide 52