Chapter 5

Estimation
 Learning Objectives

In this chapter, you learn:

 To construct and interpret confidence interval estimates
for population means and population proportion.
 How to determine the sample size necessary to
develop a confidence interval of a desired length
 Point and Interval Estimates
 A point estimate is a single number.
Examples: sample mean, sample variance, sample proportion.
 Point and Interval Estimates
 A confidence interval provides additional
information about the variability of the estimate

Lower Upper
Confidence Confidence
Point Estimate
Limit Limit

Width of
confidence interval
 Definition

(a,b) is a (1-α)100% confidence interval

for a parameter, if it contains this parameter
with probability (1-α).

P(a < parameter < b) = 1-α

For example, (a,b) is a 95% confidence

interval for the population mean μ if
P(a < μ < b) = 0.95
 Confidence level (1-α)
P(a < parameter < b) = 1-α

Parameter is not random! The interval (a,b) is:

μ
x1

x2 (1-)100%
of intervals
constructed
contain μ;
()100% do
not.
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
Such as 95% confident, 99% confident
 Estimation Process

Random Sample I am 95%

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

Sample
 General Formula
 The general formula for all symmetric
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

 Confidence Intervals

Confidence
Intervals

Population Population
Mean Proportion
(later)

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  Z/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

Z α/2  1.96
 For a 95% confidence interval:
1    0.95 so   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
 Intervals and Level of Confidence
Sampling Distribution of the Mean

/2 1  /2
x
Intervals μx  μ
extend from x1
σ x2 (1-)100%
X  Zα / 2
n of intervals
constructed
to
σ contain μ;
X  Zα / 2
n ()100% do
not.
Confidence Intervals
 Sampling Error
 The required sample size can be found to reach a
desired margin of error ( ) 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
 For the
Mean Sampling error
(margin of error)
σ σ
X  Zα / 2   Z /2
n n
 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  Z α/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
 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 often

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
 For n>=30 we still use normal distribution
 For n < 30 we use the t distribution
instead of the normal distribution
 Confidence Interval for μ
(σ Unknown and n >=30)
(continued)
 Confidence Interval Estimate:

S
  X  Z /2
n
 Confidence Interval for μ
(σ Unknown and n < 30)
(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  tn 1; /2
n
(where tα/2;n-1 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 is a family of distributions

 The tα/2; n-1 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)

What are degrees of freedom?

This is dimension of the space, the number of

freely varying quantities used to estimate the
standard deviation.
n
is based on n quantities,
 (X  X)
i
2
but only (n-1) vary freely.
S i 1
n -1
 Student’s t Distribution
t converges to 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 .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
 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
t-values are higher than Z-values (price for unknown σ)
 Example of a confidence interval
(case of unknown variance)

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 tn 1; /2  t 24;0.025  2.0639

The confidence interval is

S 8
X  tn 1; /2  50  (2.0639)
n 25
46.698 ≤ μ ≤ 53.302
 Example
 Surveying milk production (kg/day) of some cows in a breeding farm,
people have the following data:
Milk production 7 -- 9 9 – 11 11 -- 13 13 – 15 15 – 17

-
Number of cows 12 18 40 20 9

a) Construct a 90% confidence interval for the mean milk production of all
cows in the farm.
b) Cows with milk production above 13 kg/day are called “high quality”.
Construct a 95% confidence interval for the mean milk production of all
“high quality” cows in the farm.
 Confidence Intervals for the
Population Proportion, p

 An interval estimate for the population

proportion ( P ) can be calculated by
adding an allowance for uncertainty to
the sample proportion ( p̂ )
 Confidence Intervals for the
Population Proportion, p
(continued)
 Recall that the distribution of the sample
proportion is approximately normal if the
sample size is large, with standard deviation

P(1 P)
σP 
n
 We will estimate this with sample data:

pˆ (1 pˆ )
n
 Confidence Interval Endpoints
 Upper and lower confidence limits for the
population proportion are calculated with the
formula

pˆ (1 pˆ ) ˆ (1 pˆ )
p
pˆ  z α/2  P  pˆ  z α/2
n n

 where
 z is the standard normal value for the level of confidence desired
p̂/2
 is the sample proportion
 n is the sample size
 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.

pˆ (1 pˆ ) ˆ (1 pˆ )
p
pˆ  z α/2  P  pˆ  z α/2
n n
25 .25(.75) 25 .25(.75)
 1.96  P   1.96
100 100 100 100
0.1651  P  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.
 Example
 Do with above example…
c) Construct a 98% confidence interval for the
proportion of all “high quality” cows in the farm.
Determining Sample Size

Determining
Sample Size

For the For the

Mean Proportion
 Determining Sample Size
(continued)

Determining
Sample Size

For the
Mean

σ 2
Z  2
  Z /2 Now solve
n  /2
n for n to get
 2
 Determining Sample Size
(continued)

Determining
Sample Size

For the
proportion

ˆ  p)
p.(1 ˆ
  Z /2 Now solve
n for n to get
Z 2
ˆ ˆ
.p(1-p)
 /2
n 2
 Chap 8-40
 Required Sample Size Example

If  = 45, what sample size is needed to

estimate the mean within ± 5 with 90%
confidence?

2 2 2 2
Z σ (1.645) (45)
n 2
 2
 219.19
 5

So the required sample size is n = 220

(Always round up)
Example
 Chapter Summary

In this chapter we discussed

 The concept of confidence intervals
 Point estimates & confidence interval estimates
 Confidence interval for the mean (σ known)
 Confidence interval for the mean (σ unknown)
 Determining required sample size
 Ethical issues in confidence interval estimation