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# 3/23/2016

## OPRE 6301/SYSM 6303

Quantitative Introduction to Risk and
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Chapter Twelve

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Student t Distribution

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Student t Distribution
In addition to mean, m, and standard deviation, s,
the Student t distribution also requires degrees of
freedom, n, be specified.

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Student t Distribution
P(t t A ,n ) P

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Student t Distribution

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Student t Distribution

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Estimating m when
s is unknown
When s is unknown, we must estimate the
standard deviation with its point estimator s.

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Estimating m when
s is unknown
When s is unknown, we must estimate the
standard deviation with its point estimator s.
When we use the point estimator s, we must
use the Student t distribution so we do not
overestimate our confidence in the results.

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Estimating m when
s is unknown
Substitute into the probability equation
s
s

P x t 2,n
m x t 2,n
1
n
n

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Estimating m when
s is unknown
Substitute into the probability equation
s
s

P x t 2,n
m x t 2,n
1
n
n

## This equation provides us a confidence

interval estimate of m when the population
standard deviation is unknown.
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Estimating m when
s is unknown
Substitute into the probability equation
s
s

P x t 2,n
m x t 2,n
1
n
n

## Lower Confidence Limit:

x t 2,n

s
n

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Estimating m when
s is unknown
Substitute into the probability equation
s
s

P x t 2,n
m x t 2,n
1
n
n

x t 2,n

## Upper Confidence Limit: x t 2,n

s
n
s
n
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Estimating m when
s is unknown
Substitute into the probability equation
s
s

P x t 2,n
m x t 2,n
1
n
n

## The probability (1-) is the confidence level,

which is a measure of how frequently the
interval will include m.
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Estimating m when
s is unknown
Lets investigate the interval estimate using the
data from Example 10.1. Doll Computers

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Test statistic

x m
s n

## which is Student t-distributed

with n=n-1 degrees of freedom

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## Testing m when s is unknown

Lets investigate Example 12.1

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## Testing a population proportion

Sample proportion

x
n

P p
p(1 p) / n
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Test statistic

P p
p(1 p) / n

## which is approximately normal when

np and n(1-p) are greater than 5.

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## Testing a population proportion

Confidence Interval

p z 2 p(1 p) / n

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## Testing a population proportion

Lets investigate Example 12.5

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## Testing a population proportion

Sample size to estimate the proportion

B z 2 p(1 p) / n

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## Testing a population proportion

Sample size to estimate the proportion

B z 2 p(1 p) / n
By rearranging the formula algebraically

z 2 p(1 p)

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## Testing a population proportion

So, if we want our error to be no larger than 0.03

1.96 p(1 p)

0.03

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## Testing a population proportion

Problem: we need an estimate of the proportion

Method 1

p 0.5
It is the most conservative value we can choose

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## Testing a population proportion

Problem: we need an estimate of the proportion
Method 1

p 0.5
It is the most conservative value we can choose
2

32.672 1,068
n

0.03

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## Testing a population proportion

Problem: we need an estimate of the proportion

Method 2
Set the proportion to the best estimate you have

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## Testing a population proportion

Problem: we need an estimate of the proportion
Method 2
Set the proportion to the best estimate you have
2

26.132 683
n

0.03

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