ST3003 Competency Discussion Question 

ST3003 Normal Distribution

1. Provide an example in which you would use a 90% confidence interval rather than a 99% confidence interval.
2. Explain one benefit to using a 90% confidence interval instead of a 99% confidence interval.

ST3003 Competency Discussion Answer

In market research, a survey is usually conducted by researchers to estimate the average amount of money individuals spend on a particular product or service. For instance, if a researcher is conducting a survey to estimate the people’s average monthly expenditure on coffee in a certain city, he or she will calculate the confidence interval after obtaining a sample of 100 individuals to estimate the population’s true average.

Here, the researcher may decide to use a 90% confidence interval as opposed to a 99% confidence interval. A 90% confidence interval will provide a narrower interval for the estimated mean, which implies that there is a 90% chance that the true mean is within this interval. A 99% confidence interval would provide a wider interval, with more confidence (99%) about the true mean but perhaps a less precise estimate.

The primary benefit of a 90% confidence interval in this case is that it is more precise. Decision-makers can obtain a more accurate estimate with a smaller interval, and this could be more useful for actual applications such as pricing or planning advertising campaigns. Though the 99% confidence interval offers a higher degree of confidence, the 90% interval offers a nice trade-off between confidence and precision and is therefore an ideal choice when one requires making a quick decision that can be implemented (Moore, McCabe, & Craig, 2017).

Reference

Moore, D. S., McCabe, G. P., & Craig, B. A. (2017). Introduction to the practice of statistics (9th ed.). W.H. Freeman and Company.