CONFIDENTIAL INTERVAL Practical example A machine fills cups with margarine, and is supposed to be adjusted so that the content

of the cups is 250 g of margarine. As the machine cannot fill every cup with exactly 250 g, the content added to individual cups shows some variation, and is considered a random variable X. This variation is assumed to be normally distributed around the desired average of 250 g, with a standard deviation of 2.5 g. To determine if the machine is adequately calibrated, a sample of n = 25 cups of margarine is chosen at random and the cups are weighed. The resulting measured masses of margarine are X1, ..., X25, a random sample from X. To get an impression of the expectation , it is sufficient to give an estimate. The appropriate estimator is the sample mean:

The sample shows actual weights x1, ..., x25, with mean:

There is an interval around the value 250.2 grams containing the population mean. Such an interval is called a confidence interval for the parameter . How do we calculate such an interval? In our case we may determine the endpoints by considering that the sample mean X from a normally distributed sample is also normally distributed, with the same expectation , but with a standard error of:

Or

X~N

By standardizing, we get a random variable

Page 1 of 3

dependent on the parameter to be estimated, but with a standard normal distribution independent of the parameter . Hence it is possible to find numbers z and z, independent of , between which Z lies with probability 1 , a measure of how confident we want to be. We take 1 = 0.95. So we have: z = 1.96 and we get:

This might be interpreted as: with probability 0.95 we will find a confidence interval in which we will meet the parameter between the stochastic endpoints

and

This does not mean that there is 0.95 probability of meeting the parameter in the calculated interval. Every time the measurements are repeated, there will be another value for the mean X of the sample. In 95% of the cases will be between the endpoints calculated from this mean, but in 5% of the cases it will not be. The actual confidence interval is calculated by entering the measured masses in the formula. Our 0.95 confidence interval becomes:

Theoretical example Suppose X1, ..., Xn are an independent sample from a normally distributed population with (parameters) mean and variance 2. Let

Page 2 of 3

be the well known statistics, sample mean and sample variance. Then

has a Student's t-distribution with n 1 degrees of freedom. Note that the distribution of T does not depend on the values of the unobservable parameters and 2; i.e., it is a pivotal quantity. Suppose we wanted to calculate a 90% confidence interval for . Then, denoting c as the 90th percentile of this distribution,

(Note: "95th" and "0.9" are correct in the preceding expressions. There is a 5% chance that T will be less than c and a 5% chance that it will be larger than +c. Thus, the probability that T will be between c and +c is 90%.) Consequently

and we have a theoretical (stochastic) 90% confidence interval for . After observing the sample we find values x for X and s for S, from which we compute the confidence interval

an interval with fixed numbers as endpoints, of which we can no more say there is a certain probability it contains the parameter . Either is in this interval or isn't.

Page 3 of 3