Chapter 8

Confidence Interval
Estimation
David Chow
Oct 2014

Learning Objectives
To construct and interpret confidence interval

estimates for the mean and the proportion.

To determine the necessary sample size for a

confidence interval.
Section 8.5: Applications in Auditing (NOT covered)

Basic Concepts
A point estimate is a single number
Eg: For the population mean (), a point estimate is ____

A confidence interval is an interval estimate. It provides

additional information about variability.

Eg: Giant pandas mean age = 22 yrs old

Lower Confidence
Limit

Point Estimate

Upper Confidence
Limit

Width of confidence interval

Eg: According to a survey, the 95% confidence interval mean

wage of private tutoring is between $110 to $150 per hour
I.e., = $130 20

Basic Concepts

The general formula for all confidence intervals (C.I.) is:

Point Estimate Margin of Error,

where

Margin of Error (e) = (Critical Value) x (Standard Error)

Critical values (Z) are related to the level of confidence (1- , also
called confidence level).
Eg: 95% confidence: (1 - ) = 0.95, or = 5%.

With a given , critical values can be obtained from the Z-table.

Then, a C.I. can be computed:

Eg: 95% confidence: (1 - ) = 0.95, or = 5%.
4

Remarks
This chapter focuses on two parameters, and
Lets start with the easiest case: estimating with a

known population standard deviation ()

A more realistic case ( unknown) follows

Concepts versus Computation:

As always, statistic concepts can be a bit abstract at first,

but computations have standard steps to follow

We will work out a few examples, master the

computations first, then go back to think about the

rationale and interpretation behind your math
5

Estimating
( Known)

Confidence Interval for

( Known)
Assume population standard deviation is known.
Also assume n is large enough (n > 30), or the population

is normally distributed. Such assumptions ensure ____.

A two-tailed confidence interval estimate:

XZ

Z, also written as Z/2, is the standardized normal distribution

critical value for a probability of ____ in each tail.

7

Critical Values of Z
Consider a 95% confidence interval:

Find the critical values

Z0.05 and Z0.005.

1 .95

.025
2

.025
2
Z= -1.96
Lower
Confidence Limit

0
Point Estimate

Z= 1.96
Upper
Confidence Limit
8

Eg: Length of A4 Paper

A paper producer wants to check if the

paper produced has the correct mean length

of 11 inches
Find the 95% confidence interval of the

population mean paper length based on a

sample of 100, sample meanx = 10.998 in
is known to be 0.02 in

Eg: Length of A4 Paper

The 95% confidence interval is given by:

=x Z/2 x
Step 1: Find Z0.025 = 1.96
Step 2: Z/2 x = 1.96 (0.02)/10 = 0.00392

The required confidence interval is:

= 10.998 0.00392 inches, or
10.99408 < < 11.00192

Find the 99% interval. What is the effect of raising

the confidence level?

10

Eg: Mean Resistance

ANSWER

A sample of 11 circuits
from a large normal
population has a mean
resistance of 2.20 ohms.
Past testing shows that
the population standard
deviation is 0.35 ohms.
Determine a 95%
confidence interval for
the true mean resistance
of the population.

X Z 0.025

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

I.e., 95% of intervals formed in this

manner will contain the true
population mean.

Is it correct to use the Z-distribution?

11

Recap: Choosing Confidence Level

A bigger confidence level raises

the confidence (of the interval

containing the true mean)
But a wider interval estimate also

means ____ precision

95% is the most common choice
It provides a good balance between

precision and confidence

12

Example: Body Temperature

1.
2.

n = 106,x = 98.20F, = 0.62F

Find the 95% confidence interval
How to obtain a narrower interval estimate?

ANSWER

1.

Margin of error = ____ = 0.12

2.

CI: 98.08 to 98.32

Smaller sigma, bigger n, or smaller (1-alpha)

13

, Confidence Intervals and

Sampling Distribution
Sampling Distribution

/2

1
x

Intervals:

X Z
n

to

X Z

x1
x2

/2

x
(1-) x 100% of
intervals constructed
contain ;
() x 100% do not.

Confidence Intervals
14

Interpreting Confidence Level

Suppose we select many different samples of

size n from a population.

A 95% confidence interval is constructed for

each sample.
Then 95% of those interval estimates would

actually contain the true value of .

15

Estimating
( Unknown)

16

Confidence Interval for

( Unknown)
Usually is unknown
Use sample standard deviation S instead

This will introduce extra uncertainty

because S varies from sample to sample

So another distribution (the t distribution) is used

It is flatter than the standard normal distribution

The t distribution requires that the original population is

normally distributed
This is assumed in most cases
Strictly speaking, this assumption should be checked at first
17

Confidence Interval for

( Unknown)

With an unknown , you need to be sure that

(1) the sample size is large enough (n 30), or

(2) the population is normal

Such assumptions enable the use of Students t dist:

S
Confidence Interval Estimate: X t
n-1

where t, also written as t/2,n-1, is the critical value of the t

distribution with n-1 degree of freedom, and an area of /2 in
each tail)
18

Critical Values of t
The critical value of t is characterized by two elements:
The confidence level (1- ), and
The degrees of freedom (df).

What is d.f.?
It is the number of observations that are free to vary after

sample mean has been calculated.

In this section, df = n-1.

19

Degrees of Freedom
Eg: Suppose the mean of 3 numbers is 8.0
Let X1 = 7,

X2 = 8

What is X3?

Given a mean value of 8.0, X3 must be 9

(i.e., X3 is not free to vary)

Here, n = 3, so degrees of freedom = n 1 = 3 1 = 2

In
this
= 2. 2 values (X1 and X2),
You
areexample
free tod.f.
choose
but the third is set for a given mean.
What does it mean?

20

Degrees of Freedom
Note: t

Z as n increases

Standard Normal
(t distribution with df = )
t (df = 13)

t-distributions: bellshaped, symmetric,

t (df = 5)

but fatter tails than Z

t
21

Critical Values of t
Upper Tail Area
df

.25

1 1.000

Suppose n = 21, and = 0.10.

.10

.05

3.078

6.314

Then df = ____,

upper-tail area = ____

d.f. = 20

20 0.687

1.325

1.724

21 0.686

1.323

1.721

The body of the table contains

t values, not ____

/2 = 0.05

1.724

t
22

Eg: Mean Age of Retirement

A random sample of 25 retirees has mean age = 50 and

std = 8. Find the 95% confidence interval for .

Must assume a normal population.

From t-table, t0.025, 24 = 2.0639

The confidence interval is

X t/2, n -1

S
8
50 (2.0639)
n
25

(46.698 , 53.302)
23

Eg: Heating Oil Consumption

A random sample of 35 households has mean consumption of

heating oilx = 1122.75 gallons, and S = 295.72 gallons.
Find the 95% confidence interval for .

ANSWER
ANSWER

Critical values are t0.025, 34 = 2.0322.

= 1122.75 101.58 gallons.

Based on the sample evidence, we are 95% confident that the

interval 1122.75 101.58 gallons covers the population mean.

NOTE: Z or t?
If n 30, it is commonly acceptable to use Z (instead of t) as an approximation.
But if you can find a more precise answer (using t-values), why not?
24

Estimating
Population Proportion

25

Confidence Intervals for the

Population Proportion
Recall that the distribution of the sample proportion is

approximately normal if the sample size is large, with

standard deviation

(1 )
n

We will estimate this with sample data:

p(1 p)
n

26

Confidence Intervals for the

Population Proportion
The confidence interval for the population proportion is given by:

pZ

p(1 p)
n

where
Z = critical Z-value given the level of confidence
p = sample proportion
n = sample size

Such interval estimate for is based on a point estimate (p), plus

an allowance for uncertainty arising from sampling

27

Example: Vegetarians
1.

A random sample of 100 people shows that 25 of them are vegetarians.

Form a 95% confidence interval for the true proportion of vegetarians in the
population.

2.

Compute the 95% confidence interval if n=1000.

p Z p(1 p)/n
25/100 1.96 .25(.75)/100
.25 1.96 (.0433)
(0.1651 , 0.3349)

Interpretation

95% of intervals formed from

samples of size 100 in this manner
will cover the true proportion
28

Sample Size
Determination

29

Sample Size Determination

Recall that sample size (n) affects the margin

of error (e, also called sampling error),

where e Z

If e is set before conducting a survey, this

equation helps you determine the sample size

for a pre-set value of e (the acceptable level
of error):
Z2 2
n

e2
30

Sample Size Determination

If = 45, what sample size is needed to estimate
the mean within 5 with 90% confidence?
Z2 2 (1.645)2 (45)2
n

219.19
2
2
e
5

Round up to the next integer to get the

required sample size n = 220
31

Eg: A4 Paper Again

In the paper manufacturer example, = 0.02, n =
100, and the 95% interval estimate is = 10.998
0.00392 inches.
Suppose the manufacturer wants to limit the error to
0.003 by choosing a larger sample. What is n?
ANSWER
ANSWER

Z 2 2 (1.96) 2 (0.02) 2
n

.7
The required
sample
size2 is n 170
= 171.
2
e
0.003

32

Sample Size Determination

To determine the required sample size for the proportion, you
must know:
The critical value Z (from a confidence level of 1-),
The acceptable sampling error (e), and
The true proportion .
If is unknown, use the sample value p, or set = 0.50.

eZ

(1 )
n

Now solve
for n to get

Z (1 )
n
e2
2

33

Eg: Quality Control

Out of a population of 1,000 light bulbs, we randomly selected 100 of
which 30 were defective. What sample size is needed to be within
0.05 with 90% confidence?
(a) Since the true population proportion is unknown, use the sample
value here.
(b) Now, set = 0.50 and compare the result with (a).
ANSWER

(a)

Z p 1 p 1.645 0.3 0.7

2
Error
0.052
227.3 228
2

(b) The required sample size

increases to 271.
NOTE: The product (1- ) ranges
from 0 to 0.25. By assuming a value
of 0.25, we are in fact playing safe by
sampling more than necessary.
34

More on the
t Distribution

35

t Distribution
The t distribution is a family of probability
distributions. It is bell-shaped, symmetric, &
flatter than the Z distribution..
A specific t distribution depends on a parameter
known as the degrees of freedom (d.f.).
Degrees of freedom refer to the number of
independent pieces of information that go into the
computation of s.

36

 A t distribution with more degrees of freedom has ____ dispersion.

As the number of d.f. increases, the difference between t distribution
and Z distribution becomes smaller and smaller.

37

t Distribution
Degrees

What is this
2.009?

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

Look familiar?
They are ____.
38

Review Questions

A population has a standard deviation of 50. A random sample of

100 from this population is selected, and the sample mean is 600.
At 95% confidence, the margin of error is ____

As the number of degrees of freedom for a t distribution ____, the

difference between the t distribution and the standard normal
distribution becomes smaller

For the interval estimation of when is known and the sample

is large, the proper distribution to use is ____
1. 9.8
ANSWER
2. Increases
3. The normal distribution

Review Questions
4.

The t value for a 95% confidence interval estimation with 24

degrees of freedom is ____

5.

A 95% confidence interval for a population mean is determined

to be 100 to 120. If the confidence coefficient is reduced to 0.90,
the interval for
a.
b.
c.
d.

6.

becomes narrower
becomes wider
does not change
becomes 0.1

In a random sample of 144 observations, sample proportion p =

0.6. The 95% confidence interval for is
a.
b.
c.
d.

0.52 to 0.68
0.144 to 0.200
0.60 to 0.70
0.50 to 0.70

4. 2.064
ANSWER
5. A
6. A