E370

10/22/2016
Inferential Methods:
Confidence Interval
Estimation
Week 10 Part 1
Discrete w/ Probability Distribution Single variable with probability distribution; E(X), V(X)

Linear Combinations Multiple variables with known expected values E(aX + bY), V(aX + bY)

Bernoulli Single trial resulting in one of two mutually exclusive and collectively exhaustive outcomes.

One parameter, E(X)=, V(X) = (1-)

Binomial: X~B(n, ) Repeated, independent Bernoulli trials with constant probability of success.

Parameters n, E(X)=n* V(X) = n**(1-)

Uniform: X~U(a, b) Simplest continuous distribution; pdf is horizontal, parallel to X axis
() ()
= Parameters a, b () = =

Normal: X~N(, ) Bell-shaped and symmetric Parameters ,

Utility Distributions Standard Normal=Z~N(0, 1)

Students t: t(df)

Sampling Distributions Sample mean ~ ,

if X~N or, if n > 30.

Sample proportion ~(, ) if X is a binomial, and n* > 5 AND n*(1-)> 5

Confidence Interval Estimation

Population Mean, known /


/
Population Mean, unknown

( )
Population Proportion, n*>5, n*(1-) > 5 /

Confidence Interval Estimation To estimate
Population /
Mean when
is known

To estimate
Population /
Mean when
is unknown

To estimate
Population ( )
Proportion /

when n*>5
& n*(1-) > 5
 Parameters are important!
We never know parameters,
but, we WANT to know parameters!
About the closest we are going to get is to make
educated guesses about parameter values.
Our first inferential task is to figure out how to
estimate parameters.
We will focus on estimating the population mean, ,
and the population proportion, .

The first real inferential method

 Thereare two kinds of estimators we will think
about in this class. They are point estimators
and interval estimators.
Point estimators are single values used to estimate
the parameter of interest.
There are several possible estimators for different
parameters; the population mean can be estimated by a
single observation drawn from the population, the sample
mean and the sample median.
Interval estimators produce a range of values a
parameter might reasonably be. The most common
interval estimator is the Confidence Interval.

Estimators
 We have options when we choose point
estimators, so criteria have been developed for
selecting the best point estimator.
The best estimators are unbiased; they are close to
the parameter they estimate.
An estimator is unbiased if its expected value is equal to the
parameter being estimated.
The best unbiased estimators are those that vary the
least.
An efficient estimator is one that has the smallest variance
of all estimators.

A word about point estimators

 The
unbiased estimator for the population
mean with the smallest variance is the sample
mean.

= and = < (and < )

Theunbiased estimator for the population

proportion with the smallest variance is the
sample proportion.
()
= and =

So, the best are . . .?

. . .about these best estimators.

We know the circumstances under which their

distributions will be normal.

~ if the population is normally distributed or if

n> 30.
p~N if n* >5 and n*(1-) >5

We know something else . . .

 Point
estimators are good as far as they go,
which is to give us a single best guess for the
value of the parameter we want to know.
But we know from our work with sampling
distributions that sample means and sample
proportions change with the sample.
So, while a sample mean is the best single value we
have, we dont know how good it is. We need some
idea of just how close our guess is to the parameter.

But we dont stop here . . .

 Turns out that using an interval estimator with
the best point estimators gives us just what we
need.
A Confidence Interval is a point estimate in the
middle of an interval estimate.
The interval provides wiggle room which captures
the variation due to the randomness of the point
estimate.
We select how precise we want our estimate to be
and calculate the correct amount of wiggle room.

A point estimator with friends

 An interval estimate centered at a point estimate.
They are most often (and always in this class) a
statistic (point estimate) plus and minus a margin of
error (the wiggle room.)
The distance between the point estimate and the
lower end of the interval is always the same as the
distance between the point estimate and the upper
end of the interval.
We pick the level of precision we want and calculate
an interval in the units we need to solve our problem.

The Confidence Interval

 Point Estimate the center point of the interval
estimate.
Level of Confidence how sure we are of our estimate
expressed as a probability; the area above the interval.
Critical Values The level of confidence translated into
a number of standard deviations away from the point
estimate.
Alpha The area under the curve outside the interval,
1- Level of Confidence.
Margin of Error The wiggle room, the distance from
the point estimate to either end of the interval.
The Interval The upper and lower limits of the
interval, or the point estimate the margin of error.

Confidence Interval Language

Level of Confidence
Alpha
Parts:
Critical Values
Point Estimate
Margin of Error
The Interval

Anatomy
of a Confidence Interval
 =ABS(NORM.S.INV(/2))
=
= NORM.S.INV(1- /2)

=ABS(T.INV(/2, n-1))
=

=T.INV(1- /2, n-1)

() =ABS(NORM.S.INV(/2))
=

= NORM.S.INV(1- /2)

Margins of Error