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Week8

The document covers confidence interval estimation for the population mean, including methods for known and unknown distributions. It discusses the conditions required for constructing confidence intervals, factors affecting their width, and the use of Student's t-distribution. Additionally, it addresses how to determine the required sample size for estimating the mean with a specified level of confidence.

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0% found this document useful (0 votes)
7 views18 pages

Week8

The document covers confidence interval estimation for the population mean, including methods for known and unknown distributions. It discusses the conditions required for constructing confidence intervals, factors affecting their width, and the use of Student's t-distribution. Additionally, it addresses how to determine the required sample size for estimating the mean with a specified level of confidence.

Uploaded by

abc.ray277299
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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CB2200 Business Statistics

Topic 5
Confidence Interval Estimation
Tutorial Week 8

1
Concept Review
 Confidence Interval Estimation for the Population Mean
 Using Distribution ( Known)
 Using Distribution ( Unknown)
Next week (Week 9)
 Determining Required Sample Size for Estimating Mean

2
What is a Confidence Interval?
 Provides a range of values
 Using one sample to indicate population
 Recall that if we calculate every possible samples.

 We could use one to estimate the , considering variations.

 Stated in terms of level of confidence,


 = (1 – level of confidence)
 e.g. 99% level of confidence -> = 1%
 Can never be 100% sure!

3
Confidence Interval Estimation
1. We need the to be a normal distribution
Confidence
Intervals for μ

X ~ Normal distribution X ~ other distribution

σKnown
Known Unknown Large Sample Small Sample
(n ≥ 30) (n < 30)

distribution distribution
Known Unknown
yes Z
2. Do we know
t distribution distribution
no
4
CI for ( Known)
 Conditions
 Population standard deviation () is known
 Population is normally distributed
 If population is not normal, but with a large sample , by Central
Limit Theorem
 Confidence interval estimate

Standard Error,
P(Z<
Sampling Error,
(Also called margin of error)
Critical Value

5
CI for ( Known)
 Level of Confidence
 Confidence that the interval will cover the unknown population
mean
 -value (Critical Value)
 is the value corresponding to an upper-tail probability of from
the standardized normal distribution
 Sampling Error (Margin of Error)
𝛼 /2

0 𝑍 𝛼/2 𝑍
6
CI for ( Known) Recall:
(< < )
 Derivation 2
𝜎
𝑋 𝑁 (𝜇 𝑋 , ( ))
√ 𝑛 α/2 α/2
1 −𝛼

−∨𝑍 𝛼 /2∨¿ ¿ 𝑍 𝛼/ 2∨¿ 𝑍


0
->
->
->

-> The CI for (% level of confidence is


->

7
CI for ( Known)
 Interpretation

√ If all possible samples of size 15 are taken and the corresponding


99% confidence intervals are constructed, 99% of these intervals


will cover the unknown population mean

√ We are 99% confident that the population average number of


shares traded on the Hang Seng Index is between 85351.88 and


344648.12

×  There is 99% chance that the unknown population mean will be


in between 85351.88 and 344648.12

8
Factors Affecting Interval Width
(Precision) Recall:
 Data variation Width = upper – lower
 Measured by = Xbar + E – (Xbar – E)
 width of interval =2*E

 Level of confidence
 Measured by
 -valuewidth of interval

 is a fixed parameter
 affects the location of the interval, but not the width

9
Student’s -distribution
 The variable no longer follows the standardized normal
distribution
 Mathematically, follows a distribution called Student’s -
distribution
 Also simply called -distribution
 Often denoted as
 The probability density function of -distribution is
,
where G is the gamma function and is the parameter of the
function which often called the degrees of freedom

10
Student’s -distribution
 Properties of t distribution Recall:
 For
 Mean & Standard Deviation
 Mean = 0 for >1, otherwise it is undefined
 Standard deviation = for > 2, = for , otherwise undefined
 The shape of the density function
 The theoretical range of is infinite, i.e.
 Bell shaped
 Symmetric about = 0
 Median = mode = 0
 As increases, the density curve approaches the N(0, 1) curve

11
Student’s -distribution
Cont’d

Standard Normal
(t with = ∞)

t (= 13)
-distributions have ‘fatter’
tails than the normal, i.e. t ( = 5)
more likely to get value
away from the mean

0 𝑇

12
Student’s -distribution
Cont’d

Find the here

Find degree of
freedom here The value within the table gives the t-value
corresponding to a particular degrees of freedom
and upper-tail area
At 7 degrees of freedom,
13
CI for ( Unknown)
 Conditions
 Population standard deviation () is unknown
 Population is normally distributed
 If population is not normal, but with a large sample , by Central
Limit Theorem
 Confidence interval estimate

Critical Value Standard Error


 With the use of -distribution with degrees
Sampling Error of freedom
in this context

14
Factors Affecting Interval Width
(Precision)
 Sample Size
 width of interval
 width of interval
 Level of confidence
 Measured by
 -valuewidth of interval
 is a random variable
 affects the location of the interval, but not the width

15
Determining Sample Size
 Statisticians have control over the sampling error () by
choosing appropriate sample sizes that are large enough
to make the results appear credible
 Sampling error measures how far off the estimation results are
likely to be from the result that they would have gotten if the
entire population are surveyed instead of merely a sample
 never use t value!
 The required sample size can be
found to reach desired sampling
error with a specified level of
confidence 𝑋
𝜎 𝑋 + 𝑍 𝛼/ 2 𝜎
𝑋 − 𝑍𝛼 / 2 √𝑛
√𝑛
= Sampling Error
16
Determining Sample Size
Cont’d

 What sample size is needed to be confidence of being


correct to within ?
 Assume is known

Round up to nearest integer

17
Summary

Week7

Week8

18

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