Chapter 6

Sampling and
Estimation
Statistical Sampling
Sampling is the foundation of statistical analysis.
Sampling plan - a description of the approach that is
used to obtain samples from a population prior to any
data collection activity.
A sampling plan states:
- its objectives
- target population
- population frame (the list from which the sample is
selected)
- operational procedures for collecting data
- statistical tools for data analysis
Example 6.1: A Sampling Plan for a
Market Research Study
A company wants to understand how golfers might
respond to a membership program that provides
discounts at golf courses.
◦ Objective - estimate the proportion of golfers who would join the
program
◦ Target population - golfers over 25 years old
◦ Population frame - golfers who purchased equipment at particular
stores
◦ Operational procedures - e-mail link to survey or direct-mail
questionnaire
◦ Statistical tools - PivotTables to summarize data by demographic
groups and estimate likelihood of joining the program
Sampling Methods
Subjective Methods
Judgment sampling – expert judgment is used to select
the sample
Convenience sampling – samples are selected based
on the ease with which the data can be collected
Probabilistic Sampling
Simple random sampling involves selecting items from
a population so that every subset of a given size has an
equal chance of being selected
Example 6.2: Simple Random Sampling
with Excel
Sales Transactions database
Data > Data Analysis > Sampling
Periodic selects every nth number
Random selects a simple random sample

Sampling is done with

replacement so duplicates
may occur.
Additional Probabilistic Sampling
Methods
Systematic (periodic) sampling – a sampling plan that selects
every nth item from the population.
Stratified sampling – applies to populations that are divided into
natural subsets (called strata) and allocates the appropriate
proportion of samples to each stratum.
Cluster sampling - based on dividing a population into
subgroups (clusters), sampling a set of clusters, and (usually)
conducting a complete census within the clusters sampled
Sampling from a continuous process
◦ Select a time at random; then select the next n items produced after that
time.
◦ Select n times at random; then select the next item produced after each of
these times.
Estimating Population Parameters
Estimation involves assessing the value of an unknown
population parameter using sample data
Estimators are the measures used to estimate
population parameters
◦ E.g., sample mean, sample variance, sample proportion
A point estimate is a single number derived from
sample data that is used to estimate the value of a
population parameter.
If the expected value of an estimator equals the
population parameter it is intended to estimate, the
estimator is said to be unbiased.
Sampling Error
Sampling (statistical) error occurs because
samples are only a subset of the total population
◦ Sampling error is inherent in any sampling process,
and although it can be minimized, it cannot be totally
avoided.
Nonsampling error occurs when the sample
does not represent the target population
adequately .
◦ Nonsampling error usually results from a poor sample
design or inadequate data reliability.
Example 6.3: A Sampling Experiment

A population is uniformly distributed between 0

and 10.
◦ Mean = (0 + 10)/2 = 5
◦ Variance = (10 − 0)2/12 = 8.333
Experiment:
◦ Generate 25 samples of size 10 from this population.
◦ Compute the mean of each sample.
◦ Prepare a histogram of the 250 observations,
◦ Prepare a histogram of the 25 sample means.
◦ Repeat for larger sample sizes and draw comparative
conclusions.
Example 6.3: Experiment Results

Note that the average of all the sample means

is quite close the true population mean of 5.0.
 Example 6.3: Other Sample Sizes
Repeat the sampling experiment for samples of size 25,
100, and 500
As the sample
size increases, the
average of the sample
means are all still close
to the expected value of
5; however, the standard
deviation of the sample
means becomes smaller,
meaning that the means
of samples are clustered
closer together around
the true expected value.
The distributions become
normal.
Example 6.4: Estimating Sampling Error
Using the Empirical Rules
Using the empirical rule for 3 standard deviations away from the mean,
~99.7% of sample means should be between:
[2.55, 7.45] for n = 10
[3.65, 6.35] for n = 25
[4.09, 5.91] for n = 100
[4.76, 5.24] for n = 500

As the sample size increases, the sampling error decreases.

using a sample size of 10, the distribution of sample means should fall
approximately from 5.0 − 3(0.816673) = 2.55 to 5.0 + 3(0.816673) =
7.45. Thus, there is considerable error in estimating the mean using a
sample of only 10. For a sample of size 25, we would expect the sample
means to fall between 5.0 − 3(0.451351) = 3.65 to 5.0 + 3(0.451351) =
6.35. Note that as the sample size increased, the error decreased. For
sample sizes of 100 and 500, the intervals are [4.09, 5.91] and [4.76,
5.24].
Sampling Distributions

The sampling distribution of the mean is the

distribution of the means of all possible samples of a
fixed size n from some population.
The standard deviation of the sampling distribution of the
mean is called the standard error of the mean:

As n increases, the standard error decreases.

◦ Larger sample sizes have less sampling error.
Example 6.5: Computing the Standard
Error of the Mean
For the uniformly distributed population, we found
σ2 = 8.333 and, therefore, σ = 2.89
Central Limit Theorem
1. If the sample size is large enough, then the sampling
distribution of the mean is:
- approximately normally distributed regardless
of the distribution of the population
- has a mean equal to the population mean
2. If the population is normally distributed, then the
sampling distribution is also normally distributed for any
sample size.
◦ The central limit theorem allows us to use the theory we learned
about calculating probabilities for normal distributions to draw
conclusions about sample means.
Applying the Sampling Distribution
of the Mean
The key to applying sampling distribution of the
mean correctly is to understand whether the
probability that you wish to compute relates to an
individual observation or to the mean of a sample.
◦ If it relates to the mean of a sample, then you must use
the sampling distribution of the mean, whose standard
deviation is the standard error, not the standard deviation
of the population.
Example 6.6: Using the Standard Error in
Probability Calculations
The purchase order amounts for books on a publisher’s Web site is
normally distributed with a mean of $36 and a standard deviation of
$8.
Find the probability that:
a) someone’s purchase amount exceeds $40.

Use the population standard deviation:

P(x > 40) = 1− NORM.DIST(40, 36, 8, TRUE) = 0.3085

b) the mean purchase amount for 16 customers exceeds $40.

Use the standard error of the mean:

P(x > 40) = 1− NORM.DIST(40, 36, 2, TRUE) = 0.0228
Interval Estimates
An interval estimate provides a range for a population
characteristic based on a sample.
◦ Intervals specify a range of plausible values for the characteristic
of interest and a way of assessing “how plausible” they are.
In general, a 100(1 - α)% probability interval is any
interval [A, B] such that the probability of falling between
A and B is 1 - α.
◦ Probability intervals are often centered on the mean or median.
◦ Example: in a normal distribution, the mean plus or minus 1
standard deviation describes an approximate 68% probability
interval around the mean.
Example 6.7: Interval Estimates in the
News
A Gallup poll might report that 56% of voters
support a certain candidate with a margin of error
of ± 3%.
◦ We would have a lot of confidence that the candidate
would win since the interval estimate is [53%, 59%]
Suppose the poll reported a 52% level of support
with a ± 4% margin of error.
◦ We would be less confident in predicting a win for the
candidate since the interval estimate is [48%, 56%].
Confidence Intervals

A confidence interval is a range of values between

which the value of the population parameter is believed
to be, along with a probability that the interval correctly
estimates the true (unknown) population parameter.
◦ This probability is called the level of confidence, denoted by 1 -
α, where α is a number between 0 and 1.
◦ The level of confidence is usually expressed as a percent;
common values are 90%, 95%, or 99%.
For a 95% confidence interval, if we chose 100 different
samples, leading to 100 different interval estimates, we
would expect that 95% of them would contain the true
population mean.
 Confidence Interval for the Mean with Known
Population Standard Deviation

Sample mean ± margin of error √n

Margin of error is: ± zα/2 (standard error)
zα/2 is the value of the standard normal random variable for an upper tail area of
α/2 (or a lower tail area of 1 − α/2).
◦ zα/2 is computed as =NORM.S.INV(1 – α/2)
◦ Example: if α = 0.05 (for a 95% confidence interval), then NORM.S.INV(0.975)
= 1.96;
◦ Example: if α = 0.10 (for a 90% confidence interval), then NORM.S.INV(0.95) =
1.645,
NORM.S.INV (1 – α/2). For example, if α = 0.05 (for a 95% confidence interval),
then NORM.S.INV (1 – 0.05/2) = NORM.S.INV (1 – 0.025) = NORM.S.INV 0.975
= 1.96;
if α = 0.10 (for a 90% confidence interval), then NORM.S.INV (1 – 0.10/2) =
NORM.S.INV (1 – 0.05) = NORM.S.INV (0.95) = 1.645, and so on.
Although formula (6.2) can easily be implemented in a spreadsheet, the Excel
function CONFIDENCE.NORM(alpha, standard deviation, size) can be used to
compute the margin of error term, Zα/2 (σ / √n), thus, the confidence interval is the
sample mean ±CONFIDENCE.NORM(alpha, standard deviation, size).
Example 6.8: Computing a Confidence
Interval with a Known Standard Deviation
A production process fills bottles of liquid detergent. The
standard deviation in filling volumes is constant at 15
mls. A sample of 25 bottles revealed a mean filling
volume of 796 mls.
A 95% confidence interval estimate of the mean filling
volume for the population is
Excel Workbook for Confidence Intervals

The worksheet Population Mean Sigma Known in the

Excel workbook Confidence Intervals computes this
interval using the CONFIDENCE.NORM function
Confidence Interval Properties
As the level of confidence, 1 - α, decreases, zα/2
decreases, and the confidence interval becomes
narrower.
◦ For example, a 90% confidence interval will be narrower than a
95% confidence interval. Similarly, a 99% confidence interval will
be wider than a 95% confidence interval.
Essentially, you must trade off a higher level of accuracy
with the risk that the confidence interval does not contain
the true mean.
◦ To reduce the risk, you should consider increasing the sample
size.
The t-Distribution
The t-distribution is a family of probability distributions
with a shape similar to the standard normal distribution.
Different t-distributions are distinguished by an additional
parameter, degrees of freedom (df).
◦ As the number of degrees of freedom increases, the t-distribution
converges to the standard normal distribution
Confidence Interval for the Mean with
Unknown Population Standard Deviation

where tα/2 is the value of the t-distribution with

df = n − 1 for an upper tail area of α/2.
t values are found in Table 2 of Appendix A or with the
Excel function T.INV(1 – α/2, n – 1).
The Excel function
=CONFIDENCE.T(alpha, standard_deviation, size)
can be used to compute the margin of error
Example 6.9: Computing a Confidence
Interval with Unknown Standard Deviation
Excel file Credit Approval Decisions. Find a 95% confidence interval
estimate of the mean revolving balance of homeowner applicants
(first, sort the data by homeowner).
Sample mean = $12,630.37; s = $5393.38; standard error =
$1037.96; t0.025, 26 = 2.056.

12,630.37 ± 2.056(5393.38/√27)
Confidence Interval for a Proportion

An unbiased estimator of a population proportion π

(this is not the number pi = 3.14159 …) is the
statistic pˆ = x / n (the sample proportion), where
x is the number in the sample having the desired
characteristic and n is the sample size.
A 100(1 – α)% confidence interval for the
proportion is
Example 6.10: Computing a Confidence
Interval for a Proportion
Excel file Insurance Survey. We are interested in the
proportion of individuals who would be willing to pay a
lower premium for a higher deductible for their health
insurance.
◦ Sample proportion = 6/24 = 0.25.
Confidence interval:
 Example 6.11: Drawing a Conclusion about a
Population Mean Using a Confidence Interval
In Example 6.8, the required volume for the bottle-filling
process is 800 and the sample mean is 796 mls. We
obtained a confidence interval [790.12, 801.88]. Should
machine adjustments be made?

Although the sample mean is

less than 800, the sample does
not provide sufficient evidence
to draw that conclusion that the
population mean is less than
800 because 800 is contained
within the confidence interval.
Example 6.12: Using a Confidence Interval
to Predict Election Returns
An exit poll of 1,300 voters found that 692 voted for a particular
candidate in a two-person race. This represents a proportion of
53.23% of the sample. Could we conclude that the candidate will
likely win the election?
A 95% confidence interval for the proportion is [0.505, 0.559]. This
suggests that the population proportion of voters who favor this
candidate is highly likely to exceed 50%, so it is safe to predict the
winner.
If the sample proportion is 0.515,the confidence interval for the
population proportion is [0.488, 0.543]. Even though the sample
proportion is larger than 50%, the sampling error is large, and the
confidence interval suggests that it is reasonably likely that the true
population proportion could be less than 50%, so you cannot predict
the winner.
Prediction Intervals
A prediction interval is one that provides a range
for predicting the value of a new observation from
the same population.
◦ A confidence interval is associated with the sampling
distribution of a statistic, but a prediction interval is
associated with the distribution of the random variable
itself.
A 100(1 – α)% prediction interval for a new
observation is
Example 6.13: Computing a Prediction
Interval
Compute a 95% prediction interval for the revolving
balances of customers (Credit Approval Decisions)
Confidence Intervals and Sample Size
We can determine the appropriate sample size needed
to estimate the population parameter within a specified
level of precision (± E).
Sample size for the mean:

Sample size for the proportion:

◦ Use the sample proportion from a preliminary sample as an

estimate of π or set p = 0.5 for a conservative estimate to
guarantee the required precision.
Example 6.14: Sample Size Determination
for the Mean
In Example 6.8, the sampling error was ± 5.88 mls.
What is sample size is needed to reduce the margin of
error to at most 3 mls?

Round up to
97 samples.
Example 6.15: Sample-Size
Determination for a Proportion
For the voting example we discussed, suppose
that we wish to determine the number of voters to
poll to ensure a sampling error of at most ± 2%.
With no information, use π = 0.5: