INTERVAL

ESTIMATION
 POINT ESTIMATION

• Estimator is a sample statistic to estimate a

population parameter
• ‘X bar’, ‘s’ & ‘p bar’ were point estimators of µ,
σ & p values of population parameters
 basics of interval
estimates
• An interval estimate describes a range of values
within which a population parameter is likely to lie
• Marketing Dept. want to know the average life in
months of car batteries their company
manufactures. They select a random sample of 200
customers list and ask them their experience with
battery life, records the data and has obtained
mean battery life as 36 months and if standard
deviation of battery life is 10 months. Interval
estimate will be xbar ± σxbar? or will it be xbar ±
2σxbar, x bar ± 3σxbar
 population mean: σ known
• CJW is a website for accepting orders over online
and to deliver it physically.
• It evaluates the customer satisfaction through
monthly survey.
• The overall satisfaction score ‘x’ ranges from 0
(worst score) to 100 (best score).
• Based on historical data, CJW now assumes that σ
= 20.
• During the most recent month, CJW has surveyed
100 customers and mean satisfaction score x bar =
82 has been obtained.
 margin of error and interval
estimate
• Sampling distribution of x bar will provide the
difference between µ and x bar.
• We have to calculate x bar ± margin of error
• To calculate margin of error, we have to calculate
Standard Error of Mean σxbar.
• σxbar = σ /√n = 20 / √100 = 20 / 10 = 2
• So, interval estimate should be x bar ± zσxbar and
somewhere between this lies the population mean.
sampling distribution of x bar

95% of all
x bar values

1.96σxbar µ 1.96σxbar
σxbar = 2
sampling distribution of x bar

95% of all
x bar values

µ
σxbar = 2
3.92 3.92
xbar1
xbar2
xbar3
 interpretation of interval
estimate
• In CJW case, n = 100 customers; x bar = 82; using xbar
± margin of error, we got 82 ± 3.92 .

• Thus, interval estimate of µ based on data from the

most recent month is 82 + 3.92 = 85.92 and 82 - 3.92 =
78.08

• Because 95% of all the intervals constructed using x bar

± 3.92 will contain µ, we can say that we are 95%
confident that the interval 78.08 - 85.92 will also include
population mean µ.

• Here we call .95 as confidence coefficient or at 95%

confidence level and the interval is called 95%
confidence interval.
 general form of an interval
estimate of population mean:
σ known
• x bar ± zα/2 (σ / √n)

• where (1 - α) is the confidence coefficient and zα/2 is the

z value providing an area α/2 in the upper tail of the
standard normal probability distribution

• For CJW problem, at 90% confidence interval, the

confidence coefficient (1 - α) = 0.90, so α = 0.10 which
leads to z0.10/2 or z0.05 which is equal to 1.645
 exercises

• In an effort to estimate the mean amount spent per

customer for breakfast at a major Kamat restaurant,
data were collected for a sample of 49 customers.
Assume a population standard deviation of Rs.15.

• a) at 95% confidence, what is the margin of the error?

• b) If the sample mean is Rs.50, what is the 95%

confidence interval for the population mean?
 exercises
• The Association of Universities reported that students
graduating from colleges carry an average debt of
$12000. Assume that this average debt is based on a
sample of 245 students and that, based on past studies,
the population standard deviation for the debt upon
graduation is $2200.

• a) Develop a 90% confidence interval estimate of the

population mean

• b) Develop a 95% confidence interval estimate of the

population mean

• c) Develop a 99% confidence interval estimate of the

population mean
population mean: σ UNknown
• Use sample standard deviation ‘s’ to estimate ‘σ’
• When ‘s’ is used to estimate ‘σ’, then margin of
error and interval estimate for the population mean
are based on the probability distribution known as ‘t’
distribution
• ‘t’ distribution is used usually when
✤ we do not know the population std. dev. ‘σ’
✤ the sample size ‘n’ is < 30
✤ the population deviates significantly from normal
 t distribution
• t distribution is a family of probability distributions
based on a parameter known as ‘degrees of
freedom’
• With larger degrees of freedom, t distribution nears
the standard normal distribution
• Margin of error ‘E’ = tα/2 (s/√n) and
• Interval Estimate of a Population Mean = x bar ± tα/2
(s /√n)
• where s = sample standard deviation, (1 - α) is
confidence coefficient and tα/2 is the t value providing an
area of α/2 in the upper tail of the t distribution with n-1
degrees of freedom
 DEGREES OF FREEDOM

• s = √(∑(xi - x bar)2 / (n - 1)
• Degrees of freedom refers to number of independent
pieces of information that goes into the computation
of ∑(xi - x bar)2
• Actually n pieces of information that goes into the
computation of numerator are x1 - x bar, x2 - x bar,
......, xn - x bar.
• And we also know that ∑(xi - x bar) = 0
 t distribution

• Sales personnel for FMCG distributors submit weekly

reports listing the customer contacts made during the
week. A sample of 65 weekly reports showed a
sample mean of 19.5 customer contacts per week.
The sample standard deviation was 5.2. Provide 90%
confidence intervals for the population mean number
of weekly customer contacts for the sales personnel.
 Determining the sample size
• What should be the size of the sample to get a desired
margin of error?

• We know that interval estimate is given by

• x bar ± zα/2 (σ / √n)

• The quantity zα/2 (σ / √n) is called margin of error ‘E’

and is determined by three parameters: zα/2, σ & n.

• Once we decide upon confidence coefficient 1- α, zα/2

can be determined.

• Using E = zα/2 (σ / √n), we can get n = (zα/2)2 σ2 / E2

 Determining the sample size
• To decide upon the size of the sample, we need value
for the population standard deviation σ and even if σ is
unknown, we can find ‘n’ provided we have a planning
value of σ.

• Planning value of σ can be obtained using one of these

methods

✤ Computed from data of previous studies

✤ The sample std dev from the preliminary sample can

be used as planning value of σ

✤ Use judgement or best guess for the value of σ

 Determining the sample size

• MakemyTrip.com provides information about tariff of

hotels rooms throughout the country. Using $22.50 as
the planning value for the population standard deviation,
what sample size is recommended for each of the
following cases? Use $2 as the desired margin of error.

a) A 90% confidence interval estimate of the population

mean cost of the hotel rooms

b) A 95% confidence interval estimate of the population

mean cost of the hotel rooms
 POPULATION PROPORTION
• The general form of an interval estimate of a population
proportion p is given by,

• p bar ± Margin of error

• Margin of error = zα/2 √( p bar * q bar) / n

• Audience profile data collected on ESPNStarsports

website showed that 26% of the users were women.
Assume that the % was based on a sample of 400
users.

• a) At 95% confidence, what is the margin of error

associated with the estimated proportion of users who
are women?

• b) what is the 95% confidence interval for the population