Confidence Interval

Estimation
 Learning Objectives

In this chapter, you learn:

 To construct and interpret confidence interval estimates
for the mean and the proportion
 How to determine the sample size necessary to
develop a confidence interval for the mean or
proportion
 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
 Point and Interval Estimates
 A point estimate is a single number, used to
estimate the corresponding population parameter.
 a confidence interval provides additional
information about the variability of the estimate

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

We can estimate a with a Sample

Population Parameter … Statistic
(a Point Estimate)

Mean μ X
Proportion π p
 Confidence Intervals

 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
 Confidence Interval Estimate
 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
 Confidence Interval Example

example
 Population has µ = 368 and σ = 15.

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

 368 ± 1.96 * 15 / 25 = (362.12, 373.88) contains 95% of

the sample means
 When you don’t know µ, you use X to estimate µ
 If X = 362.3 the interval is 362.3 ± 1.96 * 15 / 25 = (356.42, 368.18)
 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?
 Confidence Interval Example
(continued)

 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.
 Estimation Process

Random Sample I am 95%

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

Sample
 Confidence interval C.I.

 A confidence interval has the form:

Point estimate ± margin of error
 The point estimate is our guess for the value of an
unknown parameter.
 The margin of error shows how accurate we believe
our guess is, based on the sampling distribution of the
estimate.
 Confidence level shows how confident we are for the
confidence interval to cover the true population mean.
 General Formula

 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

 Margin of error (for the Mean)
 Margin of error= reliability coefficient*standard
error
z * (δ/√n)
 It is a function of :
1. The population standard deviation
2. The confidence interval
3. The sample size
 Confidence Level

 Confidence Level
 Confidence the interval will contain
the unknown population parameter
 A percentage (less than 100%)
Confidence Interval (C.I) of the Mean (μ)
 Confidence Intervals

Confidence
Intervals

Population Population
Mean Proportion

σ Known σ Unknown
 Confidence Interval for μ
(σ Known)
 Assumptions
 Population standard deviation σ is known

 Population is normally distributed

 If population is not normal, use large sample

 Confidence interval estimate:

σ
X  Zα/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
 Finding the Critical Value, Zα/2
Zα/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
 Common Levels of Confidence
 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
 Example

 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.
 Example
(continued)

 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.

 Solution: σ
X  Zα/2
n
 2.20  1.96 (0.35/ 11 )
 2.20  0.2068
1.9932  μ  2.4068
 Interpretation

 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
 Confidence Intervals

Confidence
Intervals

Population Population
Mean Proportion

σ Known σ Unknown
 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.
 Confidence Interval for μ
(σ Unknown)

 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

Chap 8-25
 Confidence Interval for μ
(σ Unknown)
(continued)

 Assumptions
 Population standard deviation is unknown
 Population is normally distributed
 If population is not normal, use large sample
 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)
 Student’s t Distribution

The t distribution has the following properties.

 It has a mean of 0.
 It is symmetrical about the mean.
 In general, it has a variance greater than 1, but the variance
approaches 1 as the sample size becomes large.
 The variable t ranges from −∞ to + ∞.
 The t distribution is really a family of distributions, since there is a
different distribution for each sample value of n − 1. We recall that
n − 1 is referred to as degrees of freedom.
 Student’s t Distribution

 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
 Degrees of Freedom (df)
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)
 Student’s t Distribution

• Compared to the normal distribution, the t distribution is less

peaked in the center and has thicker tails.

• The t distribution approaches the normal distribution as n − 1

approaches infinity
 Student’s t Distribution
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
 Student’s t Table

Upper Tail Area

Let: n = 3
df .25 .10 .05 df = n - 1 = 2
 = 0.10
1 1.000 3.078 6.314 /2 = 0.05

2 0.817 1.886 2.920

3 0.765 1.638 2.353 /2 = 0.05

The body of the table

contains t values, not 0 2.920 t
probabilities
 Selected t distribution values
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
 Example of t distribution
confidence interval
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  tα/2  50  (2.0639)
n 25

46.698 ≤ μ ≤ 53.302
 Example of t distribution
confidence interval
(continued)

 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
 Confidence Intervals

Confidence
Intervals

Population Population
Mean Proportion

σ Known σ Unknown
 Confidence Intervals for the
Population Proportion, π

 An interval estimate for the population

proportion ( π ) can be calculated by
adding an allowance for uncertainty to
the sample proportion ( p )
 Confidence Intervals for the
Population Proportion, π
(continued)

 Recall that the distribution of the sample

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
 Confidence Interval Endpoints
 Upper and lower confidence limits for the
population proportion are calculated with the
formula

p(1  p)
p  Zα/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
 Example

 A random sample of 100 people

shows that 25 are left-handed.
 Form a 95% confidence interval for
the true proportion of left-handers
 Example
(continued)
 A random sample of 100 people shows
that 25 are left-handed. Form a 95%
confidence interval for the true proportion
of left-handers.

p  Z α/2 p(1  p)/n

 25/100  1.96 0.25(0.75) /100
 0.25  1.96 (0.0433)
0.1651  π  0.3349
 Interpretation

 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.
Determining Sample Size

Determining
Sample Size

For the For the

Mean Proportion
 Sampling Error
 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
 Determining Sample Size

Determining
Sample Size

For the
Mean Sampling error
(margin of error)
σ σ
X  Zα / 2 e  Zα / 2
n n
 Determining Sample Size
(continued)

Determining
Sample Size

For the
Mean

σ 2
Zα / 2 σ 2
e  Zα / 2 Now solve
n
for n to get 2
n e
 Determining Sample Size
(continued)

 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
 Required Sample Size Example
If  = 45, what sample size is needed to
estimate the mean within ± 5 with 90%
confidence?

Z σ2 2 2
(1.645) (45) 2
n 2
 2
 219.19
e 5

So the required sample size is n = 220

(Always round up)
 If σ is unknown

 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
 Determining Sample Size
(continued)

Determining
Sample Size

For the
Proportion

π(1 π ) Now solve Z 2 π (1 π )

eZ for n to get n 2
n e
 Determining Sample Size
(continued)

 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)
 Required Sample Size Example

How large a sample would be necessary

to estimate the true proportion defective in
a large population within ±3%, with 95%
confidence?
(Assume a pilot sample yields p = 0.12)
 Required Sample Size Example
(continued)

Solution:
For 95% confidence, use Zα/2 = 1.96
e = 0.03
p = 0.12, so use this to estimate π

Zα/2 2 π (1  π ) (1.96) 2 (0.12)(1  0.12)

n   450.74
e 2 (0.03) 2

So use n = 451