Introduction to Economic Analysis and Quantitative Methods

ECON1151-Lecture 5 Part II

Dr. Rafael Wildauer

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Outline

Chapter 3: Confidence Intervals for the Population Mean

Summary: Notation

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Chapter 3: Confidence Intervals for the Population Mean

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Confidence Intervals around the population mean

I We can ask ourselves what is a plausible range of the population mean

around the sample mean we obtained?

I We call this plausible range confidence interval

I We define it as the interval which would contain the true population mean X%
of the time if we sampled repeatedly

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Confidence Intervals around the population mean

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Confidence Intervals around the population mean

I Note that these values (2.58, 1.96 and 1.64) are the value of the t-statistic
which we used to reject the null in two-sided hypotheses tests with p-values of
(1%, 2% and 10%)

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Summary: Notation

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Population Sample
I random variable Y I sample consists of n realizations of
Y takes on k possible values: the random variable:
y1 , . . . , yk y1 , . . . , yn

expected I samplePaverage:
Pvalue:
I
E[Y ] = ki=1 yi pi = µY y = n1 ni=1 yi
(not a random variable!) y is a random variable itself!

I variance: I sample variance:

1 Pn
Var [Y ] = E[(yi − µY )2 ] = σY2 sy2 = n−1 i=1 (yi − y )
2

(not a random variable!) a random variable itself!

I standard
q deviation of Y: I sample
q standard deviation:
σY = σY2 sy = sy2

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The Sample Average y
Because y is a random variable, it has a probability distribution!

We use y is an estimator for µY

Estimators
Sampling Distribution
I use y as estimator for µY
I E[y ] = µY
unbiased estimator
I sample variance of y :
σY2 sY2
I Var [y ] = = σy2 sy2 = n
n

q I sample standard deviation of y :

I σy = σy2 sY
sy = √ n

The sample standard deviation of y is also called the standard error of y !

The book uses the notation:
SE[y ] = σ̂y which is equivalent to sy
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