Chapter 8 – Interval Estimation

• By the end of the chapter, you will be able to:

1) Know what a Confidence Interval is

2) Be able to calculate a Confidence Interval of a

sample mean (based only off of sample data)

3) Present that Confidence Interval

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 8.1 Confidence Intervals

Thus far, all our estimates have been POINT estimates;

a single number emerges as our estimate for an
unknown parameter.

Ie) X  3.74
Even if we have good data and have an estimator with
a small variance, the chances that our estimate will
equal our actual value are very low.
Ie) A coin is expected to come up heads half the time.
The chance that it actually does that in a repeated
experiment is very low 2
 8.1 Constructing Confidence Intervals

Confidence intervals or interval estimators

acknowledge underlying uncertainties and are
an alternative to point estimators.

Confidence intervals propose a range of values

in which the true parameter could lie, given a
range of probability.

Confidence intervals can be constructed since our

point estimates are RANDOM VARIABLES. 3
 8.1 Constructing Confidence Intervals

The general form of ANY confidence interval will

always be:
𝑬𝒔𝒕𝒊𝒎𝒂𝒕𝒆 ±𝒎𝒂𝒓𝒈𝒊𝒏 𝒐𝒇 𝒆𝒓𝒓𝒐𝒓
For example, a poll 1 week before the election
may estimate that the Orange party obtains
votes of:

(19 times out of 20)

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 8.2 Degrees of Freedom
When given actual population data, we used into
a z-score:
Z = (x-μ)/σ

With sample data, we use a t-score with n-1

degrees of freedom
As proven by various central limit theorems.

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 8.1 CI’s and Alpha

Probabilities of confidence intervals are denoted

by α (alpha) or LEVEL OF SIGNIFICANCE.

Given α, we construct a 100(1- α)% confidence

interval. If α=5%, we construct a 95%
confidence interval:

P(Lower limit<true parameter<Upper limit)=1- α

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 8.2 CI Formula (sample mean)
Given sample data, we want to construct
confidence intervals for the mean such that:
P{t*  ( X   X ) / s X  t*}  1  

(1-α)%

t
-t* t*

Where t has n-1 degrees of freedom, and ±t*

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cuts α/2 off both tails.
 8.2 CI Formula
Rearranging we get:
P{ X  t * s X   X  X  t * s X }  1  

(1-α)%

X  t * sX X  t * sX μX

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 8.2 Formula
Our final formula becomes:

CI  X  X  t * s X
Or in general:

CI truevalue  estimate  t * sestimate

Which gives us an upper and lower bound for
our CI.
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 8.2 Example

Flipping a coin has given us 25 heads with a value of

1, and 15 tails with a value of zero. Find the 95%
CI if n=40.

We therefore have:

25(1)  15(0) 25
C   0.625
40 40
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8.2 IMPORTANT - Estimated Standard
Deviation of a Sample Mean
We have already seen that sample standard deviation
is found through the formula:

SY 
 (Y  Y )
i
2

N 1
Standard deviation of a sample mean is found
through:
sY  sY / N
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 8.2 Example

SC 
 (C i C) 2

N 1
2 2
25(1  0.625)  15(0  0.625)
SC 
40  1
9.375
SC   0.49
39

sC  sC / N  0.49 / 40  0.077
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 8.2 Example

A 95% CI has 2.5% off each tail. If n=40,

t* = 2.02 (df=39 is close enough to 40)

CI C  C  t * sC
CI C  0.625  2.02(0.077)
CI C  [0.47,0.78]
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 8.2 Interpretation:

In this example, we have a confidence interval of

[0.47, 0.78].

In other words, in repeated samples, 95% of

these intervals will include the probability of
getting a “heads” when flipping a coin.

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 8.2 Confidence Requirements

In order to construct a confidence interval, one

needs:

a) A point estimate of the parameter

b) Estimated standard deviation of the
parameter
c) A critical value from a probability distribution
(or α and the sample size, n)

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