Business Statistics

A First Course
(2nd Edition)

Chapter 5
Sampling Distributions and
Confidence Interval Estimation
2000 Prentice-Hall, Inc.

Chap. 5 - 1

Developing
Sampling Distributions
Suppose theres a
population...
Population size, N = 4
Random variable: X
is Age of individuals
Values of X: 18, 20, 22,
24 measured in years

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Chap. 5 - 2

Developing
Sampling Distributions

(Continued)

Summary Measure for the Population Distribution

N

Xi

P(X)

.3

i 1

18 20 22 24
21
4

.2
.1
0

Xi

i 1

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2.236

(18)

(20)

(22)

(24)

Uniform Distribution
Chap. 5 - 3

Developing
Sampling Distributions

(Continued)

All 16 Possible Samples of Size n = 2

1st
Obs

2nd Observation
18
20
22
24

18 18,18 18,20 18,22 18,24

20 20,18 20,20 20,22 20,24
22 22,18 22,20 22,22 22,24

16 Sample Means
1st 2nd Observation
Obs 18 20 22 24

18 18 19 20 21

24 24,18 24,20 24,22 24,24

20 19 20 21 22

16 Samples Taken
with Replacement

22 20 21 22 23

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24 21 22 23 24
Chap. 5 - 4

Developing
Sampling Distributions

(Continued)

Sampling Distribution of All Sample Means

16 Sample Means
1st 2nd Observation
Obs 18 20 22 24

18 18 19 20 21
20 19 20 21 22

P(X)
.3
.2

22 20 21 22 23

.1

24 21 22 23 24

Sample size = 2
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Sample Means
Distribution

18 19

20 21 22 23

24

# of samples = 16
Chap. 5 - 5

Developing
Sampling Distributions

(Continued)

Summary Measures for the Sampling Distribution

N

Xi

18 19 19 24
x

21
N
16
i 1

X i x
N

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i 1

18 21 2 19 21 2 24 21 2
16

1.58
Chap. 5 - 6

Comparing the Population with its

Sampling Distribution
Population Distribution
N=4

= 21

= 2.236

Sample Means Distribution

n=2

x 21

P(X)
.3

P(X)
.3

.2

.2

.1

.1

(18)

(20)

(22)

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D X

18 19

x 1.58

20 21 22 23

24

(24)
Chap. 5 - 7

Comparing the Summary Measures

Population Mean Equals to Sampling Mean

The Standard Error (standard deviation) of

the Sampling distribution is Less than
Population Standard Deviation
Formula (sampling with replacement):

X
n

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As n increases X decreases
Chap. 5 - 8

When the Population is Normal

Central Tendency

Population Distribution
= 10

= 50

Variation

X
n

Sampling with
Replacement
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Sampling Distributions
n=4
X = 5

n =16
X = 2.5
X-X = 50

X
Chap. 5 - 9

Central Limit Theorem

As
Sample
Size Gets
Large
Enough

Sampling
Distribution of X
Becomes
Almost Normal
regardless of
shape of
population

XX
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Chap. 5 - 10

When The Population is

Not Normal
Central Tendency

Population Distribution

= 10

X
Variation

X
n
Sampling with
Replacement
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= 50
X
Sampling Distributions
n=4
X = 5

n =30
X = 1.8

X 50

X
Chap. 5 - 11

Estimation Process
Population
Mean, , is
unknown

Random Sample
Mean
X = 50

I am 95%
confident that
is between 40 &
60.

Sample

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Chap. 5 - 12

Population Parameters
Estimated
Estimate Population
Parameter...
Mean

Proportion
Variance
Difference
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with Sample
Statistic
_
X

-
1

ps
s
2

_
_
x - x
1

2
Chap. 5 - 13

Confidence Interval Estimation

Provides range of values
Based

on observations from 1 sample

Gives information about closeness to

unknown population parameter

Stated in terms of probability

Never 100% sure

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Chap. 5 - 14

Elements of Confidence
Interval Estimation
A Relative Frequency That the Population Parameter
Falls Somewhere Within All Intervals constructed.
Sample
Range (Closeness)
Statistic

Confidence Limit
(Lower)

Confidence Limit
(Upper)

A 95% Confidence Interval for

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5% Uncertainty

Chap. 5 - 15

Confidence Limits for

Population Mean
Parameter =
Statistic Its Error

X Error
X = Error = X

Error

Error Z x

X Z X
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Chap. 5 - 16

Confidence Intervals

X Z X X Z
n

x_
_
X

1.645 x 1.645 x
90% of the Samples

1.96 x

2.58 x
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1.96 x
95% of the
Samples

2.58 x

99% of the Samples

Chap. 5 - 17

Level of Confidence
Relative frequency that the unknown
population parameter falls within

intervals constructed
Denoted (1 - ) % = level of confidence
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e.G. 90%, 95%, 99%

Chap. 5 - 18

Intervals &
Level of Confidence
Sampling
Distribution /2
of the Mean
Intervals
Extend from

1 -

/2

to

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(1 - ) % of
Intervals
Constructed
Contain .
% Do Not.

X Z X

X Z X

Confidence Intervals
Chap. 5 - 19

Factors Affecting
Interval Width

Data variation

Intervals Extend from

Measured by

X - Z

to X + Z

Sample size

X
n
Level of confidence
(1 - )
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Chap. 5 - 20

Confidence Interval Estimates

Confidence
Intervals
Mean

Known

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Proportion

Unknown

Chap. 5 - 21

Confidence Intervals (Known)

Assumptions

Population standard deviation is

known

Population is normally
distributed

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If not normal, use large samples

Chap. 5 - 22

Confidence Intervals (Known)

Confidence interval estimate

X Z / 2
X Z / 2
n
n

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Chap. 5 - 23

Confidence Interval Estimates

Confidence
Intervals
Mean

Known

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Proportion

Unknown

Chap. 5 - 24

Confidence Intervals (Unknown)

Assumptions
Population standard deviation is
unknown
Population is normally distributed

If not normal, use large samples

Use students t distribution

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Chap. 5 - 25

Confidence Intervals (Unknown)

Confidence interval estimate
S
S X t
X t / 2 ,n1
/ 2 ,n1
n
n

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Chap. 5 - 26

Students t Distribution
Standard
Normal
Bell-Shaped
Symmetric
Fatter Tails

t (df = 13)
t (df = 5)

0
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Z
t
Chap. 5 - 27

Degrees of Freedom (df)

Number of observations that are
free to vary after sample mean has
been calculated
degrees of freedom =
n -1
Example
= 3 -1

Mean of 3 numbers is 2
X1 = 1 (or any number)
X2 = 2 (or any number)
X3 = 3 (cannot vary)
mean = 2

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=2

Chap. 5 - 28

Students t Table
Upper Tail Area
df

.25

.10

.05

1 1.000 3.078 6.314

Assume: n = 3
df = n - 1 = 2
= .10
/2 =.05
/ 2 = .05

2 0.817 1.886 2.920

3 0.765 1.638 2.353

t Values
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2.920

Chap. 5 - 29

Example: Interval Estimation

Unknown
A random sample of n = 25 has X = 50 and
S = 8. Set up a 95% confidence interval
estimate for

S
X t / 2 ,n1
n

50 2.0639

8
25
46 . 69

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S
X t / 2 ,n1
n

50 2.0639

8
25

53 . 30
Chap. 5 - 30

Confidence Interval Estimates

Confidence
Intervals
Mean

Known

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Proportion

Unknown

Chap. 5 - 31

Confidence Interval Estimate

Proportion
Assumptions
Two categorical outcomes
Population follows binomial
distribution
Normal approximation can be used

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Np 5

&

n(1 - p) 5
Chap. 5 - 32

Confidence Interval Estimate

Proportion
Confidence interval estimate
ps ( 1 ps )
ps Z / 2
n

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ps ( 1 ps )
ps Z / 2
n

Chap. 5 - 33

Example: Estimating Proportion

A random sample of 400 voters showed 32
preferred candidate A. Set up a 95%
confidence interval estimate for p
ps Z

ps 1 ps
n

.08 1 .08
.08 1.96
400

ps Z

ps 1 ps
n

.08 1 .08
p .08 1.96
400

.053 p .107

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Chap. 5 - 34

An airline must allocate available seating between

first class passengers and economy class
passengers. The null hypothesis is that 20% of
passengers fly first class but management
recognize the possibility that the passenger could
be more or less. A random sample of 400
passengers includes 70 passengers holding first
class tickets. Can the null hypothesis be rejected
at 5% level of significance

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Chap. 5 - 35

A random sample of boots worn by 100

combat soldiers in a desert region
showed an average life of 2.05years
with a standard deviation of .08years.
Under the standard conditions the
boots are known to have an average
life of 2.42years. Is there reason to
assert at a level significance of .05 that
use in the desert causes the mean life
of such boot to decrease?

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Chap. 5 - 36