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A. One population
I. Ideal case: normal population, known σ X
Sample data: We have independent normal variables X 1 ,..., X n sampled from the same normal
population with mean µ X (unknown) and standard deviation σ X (known).
X −µ X
By this theorem the standardized variable z = is standard normal (it normal as a linear
σX
transformation of a normal variable, has mean zero and variance 1). We also know that
V ( X ) σX
µ X = EX = EX = µ X , σ X = V ( X ) = = .
n n
Therefore z becomes
X −µ X
z= . (2)
σX / n
1
σ σ
P −z α X < X −µ X < z α X = 1−α. (3)
2 n 2 n
σX
Definition. The margin of error is defined by ME = z α .
2 n
Hence, (3) becomes
P (−ME < X −µ X < ME ) = 1−α. (3’)
Step 4. Obtain and interpret confidence intervals for the population and sample means.
Question 1 (inference = conclusion about population made on sample information) What can
be said about µ X if X and σ X are known?
Answer 1. From (3’) we have a confidence interval for the population mean:
P ( X − ME < µ X < X + ME ) = 1−α. (4)
2nd interpretation of (5): the probability that the distance between X and µ X is less than ME is
high ( P (| X −µ X |< ME ) = 1−α ).
3rd interpretation of (5) (using the complement rule): it is not likely that the distance between
X and µ X exceeds ME:
P (| X −µ X |≥ ME ) = α . (7)
| X −µ 0X |< ME (8)
2
or far from µ 0X in the sense that
| X −µ 0X |≥ ME. (9)
Step 2. Discuss the cases consistent with H 0 and H a and formulate the decision rule.
(A) Supposed the realized statistic satisfies (8). By (5) the event (8) has high probability. Since
this is a likely event under the null, we don’t have sufficient evidence against the null and
cannot reject it.
(B) From (7) we see that the event (9) is not likely to occur under the null. Hence, in case (9) we
should reject the null. Our decision may be wrong (the confidence interval is derived under the
null and rejecting the null is Type I error) and (7) gives the probability of this error:
P (Type I error) = α . (10)
Remember: the statistical theory is good only for evaluating the probability of Type I error.
Decision rule. In case (8) we fail to reject H 0 . In case (9) we reject H 0 , and we know (10).
X −µ 0X
Decision rule (alternative formulation). The statistic z = is called z-score. In case
σX / n
| z |< zα /2 we fail to reject the null. In case | z |≥ zα /2 we reject the null.
Ex. 8.13 (confidence interval)
Ex. 10.11 (hypothesis testing)
Interpretation of p-value. At every α ≥ p the null is rejected. At every α < p we fail to reject
the null.
Remember: for each statistic, you can define its own p-value following the same logic.
3
Ex. Give the definition and state the properties of t distribution.
Ex. 8.24 (confidence interval)
Ex. 10.16 (hypothesis testing, one-tail test, p-value)
Ex. 9.11 (confidence interval; use the conservative formula for the degrees of freedom)
Ex. 11.4 (hypothesis testing, one-tail test)