Quantitative Method for Multi-

dimensional Management and

Group Decision Making
Estimation of Population Parameters:
Confidence Intervals
Class 3

3-1
 Learning Objectives

1. State What Is Estimated

2. Distinguish Point & Interval Estimates
3. Explain Interval Estimates
4. Compute Confidence Interval Estimates
for Population Mean & Proportion
5. Compute Sample Size

3-2
 Where Are We Going?

We are 95% confident that mean caloric intake of

infants of low-income mothers receiving WIC
assistance is 80 to 200 kcal per day greater than
that of infants of low-income mothers who do not
receive assistance. OR:

Infants of low-income mothers receiving WIC

assistance have a greater mean daily caloric
intake than infants of low-income mothers not
receiving assistance (95%CI: 80 to 200 kcal).
3-3
 Thinking Challenge

Suppose you’re
interested in the
average amount of
money that
students in this
class (the
population) have on
them. How would
you find out?
3-4
 Statistical Methods

Statistical
Methods

Descriptive Inferential
Statistics Statistics

Hypothesis
Estimation
Testing

3-5
 Estimation Process

Population Random Sample

I am 95%
Mean confident that µ
Mean, µX, is
X = 50 X is between 40
unknown & 60.

3-6
 Unknown Population
Parameters Are Estimated

Estimate Population with Sample

Parameter... Statistic
Mean µx x
Proportion p ps
2 2
Variance σx s
Differences µ1 − µ2 x1 -x2
3-7
 Estimation Methods

Estimation

Point Interval
Estimation Estimation

Confidence Boot- Prediction

Interval strapping Interval

3-8
 Point Estimation

1. Provides Single Value

 Based on Observations from 1 Sample

2. Gives No Information about How Close

Value Is to the Unknown Population
Parameter
3. Sample MeanX = 3 Is Point Estimate
of Unknown Population Mean

3-9
 Estimation Methods

Estimation

Point Interval
Estimation Estimation

Confidence Boot- Prediction

Interval strapping Interval

3 - 10
 Interval Estimation

1. Provides Range of Values

 Based on Observations from 1 Sample

2. Gives Information about Closeness to

Unknown Population Parameter
 Stated in terms of Probability
 Knowing Exact Closeness Requires Knowing

Unknown Population Parameter

3. e.g., Unknown Population Mean Lies

Between 50 & 70 with 95% Confidence
3 - 11
 Key Elements of
Interval Estimation
A Probability That the Population Parameter Falls
Somewhere Within the Interval.
Sample Statistic
Confidence Interval
(Point Estimate)

Confidence Limit Confidence Limit

(Lower) (Upper)

3 - 12
 Confidence Limits
for Population Mean
Parameter =
Statistic ± Error (1) µ x = X ± Error
(2) Error = X − µ x or X + µ x
X − µx Error
(3) Z= =
σx σx
(4) Error = Zσ x
(5) µ x = X ± Zσ x
© 1984-1994 T/Maker Co.

3 - 13
 Many Samples Have
Same Confidence Interval
X = µx ± Zσx
σ x_

X
µx-2.58σx µx-1.65σx µx µx+1.65σx µx+2.58σx
µx-1.96σx µx+1.96σx

90% Samples
95% Samples
99% Samples
3 - 14
 Level of Confidence

1. Probability that the Unknown

Population Parameter Falls Within
Interval
2. Denoted (1 - α) %
 α Is Probability That Parameter Is Not
Within Interval
3. Typical Values Are 99%, 95%, 90%

3 - 15
 Intervals &
Level of Confidence
_
Sampling σx
Distribution α/2 1-α α/2
of Mean _
X
µx = µ x
Intervals (1 - α) % of
Extend from Intervals
X - ZσX to Contain µX .
X + ZσX α % Do Not.

Large Number of Intervals

3 - 16
 Factors Affecting
Interval Width
1. Data Dispersion Intervals Extend from
 Measured by σX X - ZσX toX + ZσX

2. Sample Size
 σX = σX / √n
3. Level of Confidence
(1 - α)
 Affects Z
© 1984-1994 T/Maker Co.

3 - 17
 Confidence Interval
Estimates
Confidence
Intervals

Mean Proportion Variance

Finite
σ x Known σ x Unknown
Population

3 - 18
 Confidence Interval Estimate
Mean (σX Known)

1. Assumptions
 Population Standard Deviation Is Known
 Population Is Normally Distributed

 If Not Normal, Can Be Approximated by

Normal Distribution (n ≥ 30)

2. Confidence Interval Estimate
σX σX
X − Zα / 2 ⋅ ≤ µ X ≤ X + Zα / 2 ⋅
n n
3 - 19
 Estimation Example
Mean (σX Known)

The mean of a random sample of n = 25

isX = 50. Set up a 95% confidence
interval estimate for µX if σX = 10.
σX σX
X − Zα / 2 ⋅ ≤ µ X ≤ X + Zα / 2 ⋅
n n
10 10
50 − 196
. ⋅ ≤ µ X ≤ 50 + 196
. ⋅
25 25
46.08 ≤ µ X ≤ 53.92
3 - 20
 Thinking Challenge

You’re a Q/C inspector for

Gallo. The σ X for 2-liter
bottles is .05 liters. A
random sample of 100
bottles showedX = 1.99
liters. What is the 90%
confidence interval
estimate of the true mean 2 liter
amount in 2-liter bottles?
© 1984-1994 T/Maker Co.

3 - 21
 Confidence Interval
Solution*

σX σX
X − Zα / 2 ⋅ ≤ µ X ≤ X + Zα / 2 ⋅
n n

.05 .05
. − 1645
199 . ⋅ ≤ µ X ≤ 199
. + 1645
. ⋅
100 100

1982
. ≤ µ X ≤ 1998
.

3 - 22
 Confidence Interval
Estimates
Confidence
Intervals

Mean Proportion Variance

Finite
σ x Known σ x Unknown
Population

3 - 23
 Confidence Interval Estimate
Mean (σX Unknown)

1. Assumptions
 Population Standard Deviation Is Unknown
 Population Must Be Normally Distributed

2. Use Student’s t Distribution

3. Confidence Interval Estimate
S S
X − t α / 2, n −1 ⋅ ≤ µ X ≤ X + t α / 2, n −1 ⋅
n n
3 - 24
 Student’s t Distribution

Standard
Normal
Bell-Shaped
t (df = 13)
Symmetric
t (df = 5)
‘Fatter’ Tails

Z
t
0
3 - 25
 Student’s t Table
Assume:
α/2 n=3
Upper Tail Area df = n - 1 = 2
α = .10
df .25 .10 .05 α/2 =.05

1 1.000 3.078 6.314

2 0.817 1.886 2.920 .05

3 0.765 1.638 2.353
0 t
t Values 2.920
3 - 26
 Degrees of Freedom (df)

1. Number of Observations that Are Free

to Vary After Sample Statistic Has
Been Calculated degrees of freedom
2. Example = n -1
= 3 -1
 Sum of 3 Numbers Is 6 =2
X1 = 1 (or Any Number)
X2 = 2 (or Any Number)
X3 = 3 (Cannot Vary)
Sum = 6 3 - 27
 Estimation Example
Mean (σX Unknown)

A random sample of n = 25 hasX = 50 &

S = 8. Set up a 95% confidence interval
estimate for µX.
S S
X − t α / 2, n −1 ⋅ ≤ µ X ≤ X + t α / 2, n −1 ⋅
n n
8 8
50 − 2.0639 ⋅ ≤ µ X ≤ 50 + 2.0639 ⋅
25 25
46.69 ≤ µ X ≤ 53.30
3 - 28
 Thinking Challenge

You’re a time study

analyst in manufacturing.
You’ve recorded the
following task times (min.):
3.6, 4.2, 4.0, 3.5, 3.8, 3.1.
What is the 90%
confidence interval
estimate of the population
mean task time?

3 - 29
 Confidence Interval
Solution*

X = 3.7
S = 3.8987
n = 6, df = n -1 = 6 -1 = 5
S / √n = 3.8987 / √6 = 1.592
t.05,5 = 2.0150
3.7 - (2.015)(1.592) ≤ µX ≤ 3.7 + (2.015)(1.592)
.492 ≤ µX ≤ 6.908
3 - 30
 Confidence Interval
Estimates
Confidence
Intervals

Mean Proportion Variance

Finite
σ x Known σ x Unknown
Population

3 - 31
 Confidence Interval Estimate
Proportion

1. Assumptions
 Two Categorical Outcomes
 Population Follows Binomial Distribution

 Normal Approximation Can Be Used

 n·p ≥ 5 & n·(1 - p) ≥ 5

2. Confidence Interval Estimate

ps ⋅ (1 − ps ) ps ⋅ (1 − ps )
ps − Z ⋅ ≤ p ≤ ps + Z ⋅
n n
3 - 32
 Estimation Example
Proportion
A random sample of 400 graduates
showed 32 went to grad school. Set up a
95% confidence interval estimate for p.
ps ⋅ (1 − ps ) ps ⋅ (1 − ps )
ps − Z α / 2 ⋅ ≤ p ≤ ps + Z α / 2 ⋅
n n
.08 ⋅ (1−.08 ) .08 ⋅ (1−.08 )
.08 − 196
. ⋅ ≤ p ≤ .08 + 196
. ⋅
400 400
.053 ≤ p ≤ .107
3 - 33
 Thinking Challenge

You’re a production
manager for a newspaper.
You want to find the %
defective. Of 200
newspapers, 35 had
defects. What is the
90% confidence interval
estimate of the population
proportion defective?

3 - 34
 Confidence Interval
Solution*

n·p ≥ 5
n·(1 - p) ≥ 5
ps ⋅ (1 − ps ) ps ⋅ (1 − ps )
ps − Z α / 2 ⋅ ≤ p ≤ ps + Z α / 2 ⋅
n n

.175 ⋅ (.825) .175 ⋅ (.825)

.175 − 1645
. ⋅ ≤ p ≤ .175 + 1645
. ⋅
200 200

.1308 ≤ p ≤ .2192

3 - 35
 Finding Sample Sizes

I don’t want to
X − µx Error sample too much
(1) Z= = or too little!
σx σx
σx
(2) Error = Zσ x = Z
n
2 2
Z σx
(3) n= 2
Error

3 - 36
 Sample Size Example

What sample size is needed to be 90%

confident of being correct within ± 5? A
pilot study suggested that the standard
deviation is 45.

n=
2
Z σx
2
=
a . fa45f
1645
2 2
= 219.2 ≅ 220
Error 2
af5
2

3 - 37
 Thinking Challenge

You work in Human

Resources at Merrill Lynch.
You plan to survey employees
to find their average medical
expenses. You want to be
95% confident that the
sample mean is within ± $50.

A pilot study showed that σ X

was about $400. What
sample size do you use? 3 - 38
Sample Size
Solution*

2 2
Z σx
n= 2
Error

=
a . fa400f
196
2 2

a50f 2

= 245.86 ≅ 246

3 - 39