6.
Interval Estimation
Professor Kihoon Kim
Outline: Interval Estimation
■ Population Mean: s Known
■ Population Mean: s Unknown
■ Determining the Sample Size
■ Population Proportion
Margin of Error and the Interval Estimate
A point estimator cannot be expected to provide the
exact value of the population parameter.
An interval estimate can be computed by adding and
subtracting a margin of error to the point estimate.
Point Estimate +/- Margin of Error
The purpose of an interval estimate is to provide
information about how close the point estimate is to
the value of the parameter.
For instance, the general form of an interval estimate
of a population mean is x ± Margin of Error
Interval Estimation of a Population Mean:
s Known
■ In order to develop an interval estimate of a
population mean, the margin of error must be
computed using either:
• the population standard deviation s , or
• the sample standard deviation s
■ s is rarely known exactly, but often a good estimate
can be obtained based on historical data or other
information.
■ We refer to such cases as the s known case.
Interval Estimation of a Population Mean:
s Known
There is a (1 - a) probability that the value of a
sample mean will provide a margin of error of za /2s x
or less.
Sampling
distribution
of x
a/2 1 - a of all a/2
x values
x
µ
za /2 s x za /2 s x
How to derive a margin of error
• If we want to find (1-a)% confidence interval around
a sample mean
P (| x - µ |< error ) = 1 - a
x - µ error
Û P (| |< ) = 1-a
sx sx
error
Û P (| z |< ) = 1-a
sx
error
\ = za /2 Þ margin of error = s x za /2
sx
Note that P(| x - µ |< error ) = P(| µ - x |< error )
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Interval Estimate of a Population Mean:
s Known
Sampling
distribution
of x
1 - a of all
a/2 a/2
x values
interval
does not x
include µ µ interval
za /2 s x za /2 s x includes µ
[------------------------- x -------------------------]
[------------------------- x -------------------------]
[------------------------- x -------------------------]
Interval Estimate of a Population Mean:
s Known
• Interval Estimate of µ
s
x ± za /2
n
where: x is the sample mean
1 -a is the confidence coefficient
za/2 is the z value providing an area of
a/2 in the upper tail of the standard
normal probability distribution
s is the population standard deviation
n is the sample size
Interval Estimate of a Population Mean:
s Known
■ Adequate Sample Size
In most applications, a sample size of n = 30 is
adequate.
If the population distribution is highly skewed or
contains outliers, a sample size of 50 or more is
recommended.
If the population is not normally distributed but is
roughly symmetric, a sample size as small as 15
will suffice.
Interval Estimation of a Population Mean:
s Unknown
■ If an estimate of the population standard deviation s
cannot be developed prior to sampling, we use the
sample standard deviation s to estimate s .
■ This is the s unknown case.
■ In this case, the interval estimate for µ is based on the
t distribution.
t Distribution
The t distribution is a family of similar probability
distributions.
A specific t distribution depends on a parameter
known as the degrees of freedom.
Degrees of freedom refer to the number of
independent pieces of information that go into the
computation of s.
A t distribution with more degrees of freedom has
less dispersion.
As the number of degrees of freedom increases, the
difference between the t distribution and the
standard normal probability distribution becomes
smaller and smaller.
t Distribution
t distribution
Standard (20 degrees
normal of freedom)
distribution
t distribution
(10 degrees
of freedom)
z, t
0
t Distribution
Degrees Area in Upper Tail
of Freedom .20 .10 .05 .025 .01 .005
. . . . . . .
50 .849 1.299 1.676 2.009 2.403 2.678
60 .848 1.296 1.671 2.000 2.390 2.660
80 .846 1.292 1.664 1.990 2.374 2.639
100 .845 1.290 1.660 1.984 2.364 2.626
¥ .842 1.282 1.645 1.960 2.326 2.576
Standard normal
z values
Radiant: Basics > Prob. Calculator
14
Interval Estimation of a Population Mean:
s Unknown
• Interval Estimate
s
x ± ta /2
n
where: 1 -a = the confidence coefficient
ta/2 = the t value providing an area of a/2
in the upper tail of a t distribution
with n - 1 degrees of freedom
s = the sample standard deviation
Summary of Interval Estimation Procedures
for a Population Mean
Yes Can the No
population standard
deviation s be assumed
known ?
Use the sample
standard deviation
s to estimate
s Known
Case
Use Use
s s Unknown s
x ± za /2 Case x ± ta /2
n n
Sample Size for an Interval Estimate
of a Population Mean
Let E = the desired margin of error.
E is the amount added to and subtracted from the
point estimate to obtain an interval estimate.
■ Margin of Error
s
E = za /2
n
■ Necessary Sample Size
( za / 2 ) 2 s 2
n=
E2
Quiz: Sample Size
Discount Sounds is evaluating a potential location for
a new retail outlet, based in part, on the mean annual
income of the individuals in the marketing area of the new
location.
Suppose that Discount Sounds’ management team
wants an estimate of the population mean such that there is
a .95 probability that the sampling error is $500 or less.
How large a sample size is needed to meet the
required precision?
Assume: a sample of size n = 36 was taken,
the sample mean income is $31,100, and the population
standard deviation is estimated to be $4,500.
Answer: Sample Size for an Interval Estimate
of a Population Mean
s
za /2 = 500
n
At 95% confidence, z.025 = 1.96. Recall that s =
4,500. (1.96)2 (4, 500)2
n= 2
= 311.17 = 312
(500)
A sample of size 312 is needed to reach a desired
precision of + $500 at 95% confidence.
Radiant: Design > Sample Size (single)
20
Interval Estimation
of a Population Proportion
The general form of an interval estimate of a
population proportion is
p ± Margin of Error
The sampling distribution of p plays a key role in
computing the margin of error for this interval
estimate.
The sampling distribution of p can be approximated
by a normal distribution whenever n is large enough.
Interval Estimation of a Population Proportion
■ Normal Approximation of Sampling Distribution of p
Sampling
p(1 - p)
distribution sp =
of p n
a/2 1 - a of all a/2
p values
p
p
za /2s p za /2s p
Interval Estimation
of a Population Proportion
• Interval Estimate
p (1 - p )
p ± za / 2
n
where: 1 -a is the confidence coefficient
za/2 is the z value providing an area of
a/2 in the upper tail of the standard
normal probability distribution
p is the sample proportion
Radiant: Basics > Single mean
CI of the population mean P/E ratio
= (16.351, 27.449)
24
Radiant: Basics > Single proportion
CI of the population proportion
= (0.506, 0.853)
25
Sample Size for an Interval Estimate
of a Population Proportion
■ Margin of Error
p(1 - p)
E = za / 2
n
Solving for the necessary sample size, we get
( za / 2 )2 p(1 - p )
n=
E2
However, p will not be known until after we have selected
the sample. We will use the planning value p* for p .
Sample Size for an Interval Estimate
of a Population Proportion
■ Necessary Sample Size
( za /2 )2 p* (1 - p* )
n=
E2
The planning value p* can be chosen by:
1. Using the sample proportion from a previous
sample of the same or similar units, or
2. Selecting a preliminary sample and using the
sample proportion from this sample.
Quiz: Sample Size for an Interval Estimate
of a Population Proportion
Suppose that Political Science Inc. (PSI) would like a .99
probability that the sample proportion is within + .03 of the
population proportion. Recall that in a current election
campaign, PSI has just found that 220 registered voters,
out of 500 contacted, favor a particular candidate.
How large a sample size is needed to meet the
required precision? (A previous sample of similar units
yielded .44 for the sample proportion.) FYI, z.005 = 2.576
Ans: Sample Size for an Interval Estimate
of a Population Proportion
p(1 - p)
za /2 = .03
n
At 99% confidence, z.005 = 2.576. Recall that p = .44.
( za /2 )2 p(1 - p ) (2.576)2 (.44)(.56)
n= = @ 1817
E2 (.03) 2
A sample of size 1817 is needed to reach a desired
precision of + .03 at 99% confidence.
Radiant: Design > Sample size (single)
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