Confidence Interval

Estimation
Learning Objectives

In this chapter, you will 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
Outline

1. Confidence Intervals for the Population

Mean, μ
 when Population Standard Deviation σ is
Known
 when Population Standard Deviation σ is
Unknown
2. Confidence Intervals for the Population
Proportion, π
3. Determining the Required Sample Size
 Point Estimates
 A point estimate is a single number. For the
population mean (and population standard
deviation), a point estimate is the sample mean
(and sample standard deviation).
 A confidence interval provides additional
information about variability

Lower Confidence Upper Confidence

Limit Point Estimate Limit

Width of
confidence interval
 Confidence Interval Estimates

 A confidence interval gives a range estimate of

values:
 Takes into consideration variation in sample
statistics from sample to sample
 Based on all the observations from 1 sample
 Gives information about closeness to unknown
population parameters
 Stated in terms of level of confidence
 Ex. 95% confidence, 99% confidence
 Can never be 100% confident
 Confidence Interval Estimates

 The general formula for all

confidence intervals is:

Point Estimate ± (Critical Value) (Standard Error)

 Confidence Level
 Confidence Level
 Confidence in which the interval will contain the
unknown population parameter
 A percentage (less than 100%)
 Confidence Level

 Suppose confidence level = 95%

 Also written (1 - ) = .95
 A relative frequency interpretation:
 In the long run, 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
 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
n
(where Z is the standardized normal distribution critical value
for a probability of α/2 in each tail)
 Finding the Critical Value, Z
Consider a 95% confidence interval:
1   .95

α α
 .025  .025
2 2

Z units: Z= -1.96 0 Z= 1.96

Lower Upper
X units: Confidence Point Estimate Confidence
Limit Limit
 Normal
curve for
determining
the Z value
needed for
95%
confidence
 Normal curve
for
determining
the Z value
needed for
99%
confidence
 Finding the Critical Value, Z
Commonly used confidence levels are 90%, 95%,
and 99%
Confidence Confidence
Level Coefficient Z value

80% .80 1.28

90% .90 1.645
95% .95 1.96
98% .98 2.33
99% .99 2.58
99.8% .998 3.08
99.9% .999 3.27
 Intervals and Level of
Confidence
Sampling Distribution
of the Mean
/2 1  /2
x
Intervals μx  μ
extend from x1
(1-)x100%
σ x2
X Z of intervals
n constructed
to contain μ;
σ
X Z ()x100% do
n Confidence Intervals not.
Statistics for Managers Using Microsoft Excel, 5e © 2008 Pearson Prentice-Hall, Inc. Chap 8-14
 Confidence
interval
estimates for
five different
samples of n =
25 taken from a
population
where μ  368
and   15
Confidence Interval for μ
(σ Known) 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 .35 ohms.

 Determine a 95% confidence interval for the

true mean resistance of the population.
 Confidence Interval for μ
(σ Known) Example
σ
X Z
n
 2.20  1.96 (.35/ 11)
 2.20  .2068
(1.9932 , 2.4068)
 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
 A paper manufacturer has a production process that operates
continuously throughout an entire production shift. The paper is
expected to have a mean length of 11 inches, and the standard
deviation of the length is 0.02 inch. At periodic intervals, a
sample is selected to determine whether the mean paper length
is still equal to 11 inches or whether something has gone wrong
in the production process to change the length of the paper
produced. You select a random sample of 100 sheets, and the
mean paper length is 10.998 inches. Construct a 95%
confidence interval estimate for the population mean paper
length.
Solution
 Construct a 99% confidence interval estimate
for the population mean paper length.
 Solution
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
 Confidence Interval for μ
(σ Unknown)
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  t n-1
n
(where t is the critical value of the t distribution with n-1
d.f. and an area of α/2 in each tail)
 Student’s t Distribution

 The t 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
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
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 normal t (df = 5)

0 t
Characteristics of the t
Distribution
 The t distribution shares some characteristics
of the normal distribution and differs from it
in others. The t distribution is similar to the
standard normal distribution in these ways.
 It is a bell-shape.
 It is symmetric about the mean.
 The mean, median, and mode are equal to 0
and are located at the center of the distribution.
 The never touches the x-axis
 The t distribution differs from the standard
normal distribution in the following ways.
 The variances is greater than 1.
 The t distribution is actually a family of curves
based on the concept of degrees of freedom,
which is related to sample size.
 As the sample size increases, the t distribution
approaches the standard normal distribution.
 Student’s t Table
Upper Tail Area
Let: n = 3
df .25 .10 .05 df = n - 1 = 2
 = .10
1 1.000 3.078 6.314 /2 =.05

2 0.817 1.886 2.920

3 0.765 1.638 2.353 /2 = .05

The body of the table contains t

values, not probabilities 0 2.920 t
 Determining
the Critical
Value from
the t Table
for an Area
of 0.025 in
Each Tail
with 99
Degrees of
Freedom
 distribution with
99 degrees of
freedom
 Confidence Interval for μ
(σ Unknown) Example
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
 The confidence interval is

S 8
X  t/2, n -1  50  (2.0639)
n 25

(46.698 , 53.302)
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
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 Intervals for the
Population Proportion, π
Upper and lower confidence limits for the population proportion
are calculated with the formula

p(1  p)
pZ
n
where
 Z is the standardized normal value for the level of
confidence desired
 p is the sample proportion
 n is the sample size
 Confidence Intervals for the
Population Proportion, Example
A random sample of 100 people shows that 25 have opened
IRA’s this year. Form a 95% confidence interval for the true
proportion of the population who have opened IRA’s.

p  Z p(1  p)/n
 25/100  1.96 .25(.75)/1 00

 .25  1.96 (.0433)

(0.1651 , 0.3349)
Confidence Intervals for the
Population Proportion, Example
 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 .1651 to .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

 To determine the required sample size for the

mean, you must know:
 The desired level of confidence (1 - ), which
determines the critical Z value
 The acceptable sampling error (margin of
error), e
 The standard deviation, σ

σ Z σ 2 2
eZ Now solve
n
n for n to get 2
e
 Determining Sample Size

If  = 45, what sample size is needed to estimate

the mean within ± 5 with 90% confidence?

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

So the required sample size is n = 220

Determining Sample Size

 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
To determine the required sample size for the proportion, you
must know:
 The desired level of confidence (1 - ), which
determines the critical Z value
 The acceptable sampling error (margin of error), e
 The true proportion of “successes”, π
 π can be estimated with a pilot sample, if necessary (or
conservatively use π = .50)

 (1   ) Now solve Z  (1   )
2

eZ for n to get n

n e2
Determining Sample Size

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 = .12)
 Determining Sample Size
Solution:
For 95% confidence, use Z = 1.96
e = .03
p = .12, so use this to estimate π

Z 2  (1   ) (1.96) 2 (.12)(1  .12)

n 2
 2
 450.74
e (.03)
So use n = 451