Confidence Intervals

IIM Udaipur

July 28, 2014

In this session you will learn about

Confidence Intervals
CI for population mean (population standard deviation known)
CI for population mean (population standard deviation unknown)

Cereal Filling plant example revisited

Reconsider our cereal box example. From past experience, the cereal
filling plant knows that the weights of boxes are normally distributed.
The mean weight, as the label claims, is 500 grams. Also, from past
experience, the plant knows that the standard deviation of the process
(population standard deviation ) is 10.
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The operations manager wanted to check, at regular intervals,

whether the population mean weight was maintained

For that, he collects samples at regular intervals

Based on the sample, he decides whether the process is under

control or not

Point Estimation vs Confidence Intervals

Suppose, based on a sample of 100 boxes, the operations manager says

that:
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The estimate for the population mean (that is, weight of All the
boxes) is 501.45 grams

I am 95% confident that the population mean (that is, weight of

All the boxes) is between (499.49, 503.41)
I am 99% confident that the population mean (that is, weight of
All the boxes) is between (498.87, 504.03)

Formula for 95% Confidence Interval: known

The formula for 95% confidence interval for population mean (which we
denote by ), based on a sample of size nis
Lower limit:

X 1.96
n

(1)

Upper limit:

X + 1.96
n

(2)

Remember: Here, we know the value of the population standard

deviation

Formula for 99% Confidence Interval: known

The formula for 99% confidence interval for population mean (which we
denote by ), based on a sample of size nis
Lower limit:

X 2.58
n

Upper limit:

X + 2.58
n

Remember: Here, we know the value of the population standard

deviation

To Understand this:

Look at the board!!

Interpreting a confidence interval

Suppose, for a sample of 100 cereal boxes, we obtain that a

95% confidence interval for the weight of All boxes
(that is, the population mean ) is (499.49, 503.41)
Loosely, this means: we are 95% confident that the population
mean is in this interval

Interpreting a confidence interval

More precise interpretation: If we repeat this sampling

procedure for very, very large number of times, say, one million
times, we will get one million samples, and correspondingly,
one million sample means. Then, if we calculate the
corresponding one million confidence intervals according to
Eq.(1) and Eq.(2), then about 95% of these intervals will
contain the population mean

Remember!

The technique and the formula for finding the confidence interval for the
population mean holds even if the population is not normal, as long as
you calculate the confidence interval based on a large sample.
Why?
Recall CLT. Recall that whatever be the population distribution (normal
or non-normal, discrete or continuous), the distribution of the sample
mean is always normal, provided your sample size is large enough!

Formula for 95% Confidence Interval: unknown

Suppose, we have a population is normal, with an unknown mean and
an unknown standard deviation . The formula for 95% confidence
interval for population mean based on a sample of size nis
Lower limit:

s
X t0.025,n1
n

Upper limit:

s
X + t0.025,n1
n

Remember:
(1) Here, s is the sample standard deviation
(2) Here we are assuming that the sampling is done from a
normally distributed population
(3) Here, we are assuming that the sample size n is not too large.

Formula for 99% Confidence Interval: unknown

Suppose, we have a population is normal, with an unknown mean and
an unknown standard deviation . The formula for 99% confidence
interval for population mean based on a sample of size nis
Lower limit:

s
X t0.005,n1
n

Upper limit:

s
X + t0.005,n1
n

Remember:
(1) Here, s is the sample standard deviation
(2) Here we are assuming that the sampling is done from a
normally distributed population
(3) Here, we are assuming that the sample size n is not too large.

When to use

In these situations, one may construct CI for population mean ,

using Z-table (that is, using standard normal table):
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Sampling is done from normal population, and the value of

population SD () is known, whatever may be the sample size

Sampling is done from normal population, and the value of

population SD () is unknown, when the sample size is large enough

Sampling is done from any population other than normal, and the
value of population SD () is known, when the sample size is large
enough

Sampling is done from any population (normal, or not normal), the

value of population SD () is unknown, when the sample size is
large enough

When to use

In these situations, one may construct CI for population mean ,

using t-distribution table:
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Sampling is done from normal population, and the value of

population SD () is unknown, whatever may be the sample size
(Remember: we want to use this technique particularly when the
sample size is not large enough)