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Econ 299 Chapter 8.0
Econ 299 Chapter 8.0
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8.1 Confidence Intervals
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
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8.2 Degrees of Freedom
When given actual population data, we used into
a z-score:
Z = (x-μ)/σ
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8.1 CI’s and Alpha
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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*
(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:
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
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sC sC / N 0.49 / 40 0.077
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8.2 Example
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:
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8.2 Confidence Requirements
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