FOUNDATIONS OF BUSINESS ANALYTICS-II

Module-I Estimation

Point estimate and interval estimate, interval estimates and confidence intervals, calculating interval
estimates ofthe mean from large samples and small samples, calculating interval estimates of the
population proportion, confidence intervals for variance and standard deviation.

1. Point Estimate
A point estimate is a single value that serves as an estimate of a population parameter (like mean,
proportion, etc.). It’s a "best guess" or "snapshot" of what the true value might be based on the sample
data.

 Example:
Suppose you survey 100 students and find their average height is 165 cm. Here, 165 cm is the
point estimate of the average height of all students.

2. Interval Estimate
An interval estimate gives a range of values within which the population parameter is likely to fall, along
with a level of confidence (e.g., 95%). It accounts for the uncertainty in the estimation process.

 Example:
If you calculate a 95% confidence interval for the average height of students, it might range from
160 cm to 170 cm. This means you are 95% confident that the true average height lies within
this range.

Point Estimate and Interval Estimate Explained in Easy Words

1. Point Estimate
A point estimate is a single value that serves as an estimate of a population parameter (like mean,
proportion, etc.). It’s a "best guess" or "snapshot" of what the true value might be based on the sample
data.

 Example:
Suppose you survey 100 students and find their average height is 165 cm. Here, 165 cm is the
point estimate of the average height of all students.
2. Interval Estimate
An interval estimate gives a range of values within which the population parameter is likely to fall, along
with a level of confidence (e.g., 95%). It accounts for the uncertainty in the estimation process.

 Example:
If you calculate a 95% confidence interval for the average height of students, it might range from
160 cm to 170 cm. This means you are 95% confident that the true average height lies within
this range.

Difference Between Point and Interval Estimate

Aspect Point Estimate Interval Estimate

Definition Single value Range of values

Accuracy Less accurate More reliable

Confidence No confidence level Comes with a confidence level (e.g., 95%)

Level

Example Average height = 165 cm Average height is between 160–170 cm

Visual Example with Graph

1. Point Estimate (Single Line)

Represented as a single point on the graph, like the mean value.

2. Interval Estimate (Range)

Represented as a range with lower and upper bounds, often depicted with a confidence interval
bar.
 Interval Estimate

An interval estimate provides a range of values within which the true population parameter is
likely to lie. It is a broader term and doesn't necessarily include a specific confidence level.

Example:

Imagine you are estimating the average monthly expenditure of a household based on a survey
of 100 households. From the sample data, you calculate that the average monthly expenditure is
between $2,000 and $3,000. This range is your interval estimate, but it doesn't specify how
confident you are about this range.

 Key Characteristics of an Interval Estimate:

o It gives a range but lacks a specific level of confidence.

o Useful for providing a rough idea of the parameter.

2. Confidence Interval
 A confidence interval is a type of interval estimate that includes a specific level of confidence,
such as 90%, 95%, or 99%. The confidence level indicates how confident we are that the interval
contains the true population parameter.

Example:

Using the same survey data, you calculate a 95% confidence interval for the average monthly
expenditure, which turns out to be between $2,200 and $2,800. This means if you were to
repeat this survey many times, 95% of the intervals calculated would contain the true average
expenditure.

 Key Characteristics of a Confidence Interval:

o It includes a confidence level (e.g., 95%).

o The width of the interval depends on the sample size and variability. A larger sample size
or lower variability leads to a narrower interval.

Comparison Table

Aspect Interval Estimate Confidence Interval

Definition A range of values for a A range of values for a

population parameter parameter with a confidence
level

Includes No Yes
Confidence
Level?

Example $2,000 to $3,000 $2,200 to $2,800 with 95%

confidence

Use Case General estimation Precise estimation with

confidence

Detailed Calculation Example

Let’s calculate and interpret both an interval estimate and a confidence interval.

Scenario:

You conduct a survey to estimate the average test score of students. The sample data has:
 Graphical Representation

The graph will display:

1. The interval estimate range.

2. The confidence interval range with a 95% confidence level.

Let’s create it.

The graph illustrates the difference between an interval estimate and a confidence interval:

1. Interval Estimate (Orange bar):

A general range of values, 70 to 80, providing a rough estimate of the true average.
 2. Confidence Interval (Green bar):
A specific range, 71.08 to 78.92, calculated with a 95% confidence level. This indicates that we
are 95% confident the true average lies within this range.

The narrower range of the confidence interval reflects its precision and inclusion of statistical
confidence.

Large Samples (n ≥ 30)

For large samples, we use the Z-distribution to calculate the confidence interval. This is because,
according to the Central Limit Theorem, the sampling distribution of the mean approaches a normal
distribution as the sample size increases.

Formula:

Example: Large Sample

You survey 100 students to estimate the average time they spend on homework. The results are:
Small Samples (n < 30)

For small samples, we use the t-distribution instead of the Z-distribution because the t-distribution
accounts for additional uncertainty when the sample size is small.

Formula:

Example: Small Sample

You survey 8 students about their daily study hours. The results are:
Key Differences Between Large and Small Samples

Aspect Large Samples (n ≥ 30) Small Samples (n < 30)

Distribution Z-distribution t-distribution

Used

Uncertainty Lower (large sample sizes reduce Higher (more variability with smaller
Level error) samples)

Example Interval (3.71, 4.29) (2.66, 4.34)

Calculating Interval Estimates of the Population Proportion

When estimating a population proportion (p), we calculate a confidence interval to estimate the range
where the true proportion lies.

Formula:
Example:

You survey 500 people, and 60% say they prefer online shopping.
Here:

Interpretation: We are 95% confident that the true proportion of people preferring online shopping is
between 55.7% and 64.3%.
Interpretation:

 The true population variance lies between 1.89 and 13.33.

 The true population standard deviation lies between 1.37 and 3.65.

 Key Differences:

Aspect Proportion Variance/Standard Deviation

Distribution Z-distribution Chi-square distribution
Used
Application Used for proportions in Used for variability in data
surveys
Example Output (55.7%, 64.3%) Variance: (1.89, 13.33), SD: (1.37,
3.65)

Module-3 Testing Hypothesis of two populations

Hypothesis known and Testing unknown, and confidence Statistical intervals inferences about of two
the related difference populations, in two means Statistical when populatin Inferences varianceof two
is population proportions and tow population variances. Analysis using R commander.

=
Testing hypotheses of two populations involves comparing two groups to see if there's a significant
difference between them regarding a certain characteristic or parameter. This is common in research, for
example, comparing male and female salaries, test scores, or any measurable outcomes.

Key Terms:

1. Hypothesis Known: This means you already have a claim or assumption about the populations.
For example, "The average height of men is greater than that of women."

2. Testing Unknown: This means you are using sample data to test whether your hypothesis is
likely true or false since you don't know the exact parameters of the population.

Step-by-Step Explanation:

Formulating Hypotheses:

3. Determine the Test Type:

 If population variances are known, use a Z-test.

 If population variances are unknown, use a T-test.

4. Perform the Test:

 Compute the test statistic based on the sample data:

o For a Z-test

 Based on your test statistic and chosen significance level (e.g., 5% or 0.05), determine whether
to reject or fail to reject the null hypothesis
Confidence Intervals for the Difference Between Two Populations (in Simple Terms)

A confidence interval is a range of values that likely contains the true difference between two population
parameters (like means or proportions). It helps us estimate this difference based on sample data, with a
certain level of confidence (usually 95%).

Confidence Intervals for the Difference Between Two Populations (in Simple Terms)
A confidence interval is a range of values that likely contains the true difference between two population
parameters (like means or proportions). It helps us estimate this difference based on sample data, with a
certain level of confidence (usually 95%).

1. Difference in Two Population Means

What is it?

This is used to estimate how much the averages (means) of two groups differ.

Example:

You want to compare the average test scores of boys and girls in a school.

 Sample Data:

o Boys: Average score = 75, Sample size = 50, Standard deviation = 8.

o Girls: Average score = 70, Sample size = 45, Standard deviation = 10.

 Confidence Interval Formula:

2. Difference in Two Population Proportions

What is it?

This is used when comparing the percentages (proportions) of two groups.

Example:

You want to compare the percentage of people who like chocolate in two cities.

 Sample Data:
3. Difference in Two Population Variances

What is it?

This is used to compare the spread (variability) in two populations.

Example:

You want to know if the variability in students’ heights differs between two schools.

 Sample Data:

o School 1: Variance = 4, Sample size = 30.

o School 2: Variance = 6, Sample size = 35.

Why Confidence Intervals Matter:

1. Understand the Range: Instead of just one number (like a mean difference of 5), you get a range
(e.g., 3 to 7).
 2. Informed Decisions: Confidence intervals show the uncertainty in your estimate and help you
make data-driven decisions.

Key Points to Remember:

 Narrower Intervals mean more precise estimates (comes from larger sample sizes or less
variability).

 Wider Intervals mean less precise estimates (comes from smaller sample sizes or more
variability).

Let’s break it down step by step for each case to understand statistical inferences for
comparing two populations. We'll focus on two means, two proportions, and two variances

1. Comparing Two Means

This is about finding out if the averages (means) of two groups are significantly different.

Example:

You want to compare the average test scores of students in two classes.

Steps:

1. State the Hypotheses:

Example:
 You want to know if the proportion of people who like chocolate is different between two
cities.

Steps:

1. State the Hypotheses:

.Results show if one candidate has more support.

3. Comparing Two Population Variances

This checks if the variability (spread) in two populations is different.

Example:

You want to see if the variability in test scores is the same for boys and girls.

Steps:

1. State the Hypotheses: