Discussion On Confidence Intervals For The Bk Real Estate Co

6 1 Discussion Confidence Intervalsthe Bk Real Estate Company Sells

The B&K Real Estate Company sells homes and is currently serving the Southeast region. It has recently expanded to cover the Northeast states. The B&K realtors are excited to now cover the entire East Coast and are working to prepare their southern agents to expand their reach to the Northeast. B&K has hired your company to analyze the Northeast home listing prices in order to give information to their agents about the mean listing price at 95% confidence. Your company offers three analysis packages: one based on a sample size of 100 listings, one based on 1,000 listings, and another based on a sample size of 4,000 listings.

Because there is an additional cost for data collection, your company charges more for the package with 4,000 listings than for the package with 100 listings.

Bronze Package: Sample size of 100 listings

• 95% confidence interval for the mean of the Northeast house listing price has a margin of error of $24,500
• Cost for service to B&K: $2,000

Silver Package: Sample size of 1,000 listings

• 95% confidence interval for the mean of the Northeast house listing price has a margin of error of $7,750
• Cost for service to B&K: $10,000

Gold Package: Sample size of 4,000 listings

• 95% confidence interval for the mean of the Northeast house listing price has a margin of error of $3,900
• Cost for service to B&K: $25,000

The B&K management team does not understand the tradeoff between confidence level, sample size, and margin of error. B&K would like you to recommend the best sample size considering both the accuracy of the estimate and the cost involved.

In your initial post:

• Formulate a recommendation and write a confidence statement that reflects your choice. Assume the sample mean house listing price is $310,000 for all packages. For example, "I am [#]% confident the true mean house listing price is within [margin of error] of $310,000."
• Explain the factors that influenced your recommendation, including a discussion of the margin of error and how it relates to the sample size and cost.

In response to peers:

• Choose two different confidence intervals and discuss whether the agents might prefer a different confidence level than management, outlining the advantages and disadvantages of different choices.

Paper For Above instruction

The decision regarding which data analysis package B&K Real Estate should select to assess the Northeast housing market hinges on balancing precision and cost-effectiveness. In statistical inference, confidence intervals offer a range within which the true population mean likely falls, and the margin of error quantifies the precision of this estimate. Here, the packages vary in sample size, margin of error, and cost, necessitating a nuanced evaluation to determine the optimal choice for the company's goal of informed decision-making at minimal expense.

Given the assumption that the sample mean house listing price is $310,000, the selection of the appropriate package ultimately depends on the acceptable level of uncertainty and the available budget. The Bronze package, with a sample size of 100 and a margin of error of $24,500, provides a relatively wide interval, implying less precision but at a minimal cost of $2,000. The Silver package offers better precision with a margin of error of $7,750 at a higher cost of $10,000, while the Gold package, with an even narrower margin of $3,900 and a cost of $25,000, provides the most accurate estimate among the options.

In choosing the best package, the principle of diminishing returns must be considered. The reduction in margin of error diminishes as sample size increases, but the cost escalates significantly. The Gold package, reducing the margin of error by approximately 4,850 dollars compared to the Silver package, costs 15,000 dollars more. Whether this additional cost is justified depends on how critical precision is to the agents' decision-making relative to their budget constraints.

From a statistical standpoint, larger samples yield narrower confidence intervals because the margin of error decreases as the square root of the sample size increases. Using the margin of error formula:

Margin of Error (E) = Z * (σ / √n), where Z is the Z-value for 95% confidence (~1.96), σ is the population standard deviation, and n is the sample size. Although σ is unknown, the wide margins suggest a potentially high variability in housing prices, which the larger samples mitigate.

Therefore, to balance cost and precision, the Silver package appears to be the most practical choice. It offers a reasonable confidence interval for the mean housing price with a substantially reduced margin of error compared to the Bronze package, at a manageable additional expense over the Bronze level. This middle ground allows B&K agents to make informed decisions without incurring the steep costs of the Gold package.

Regarding confidence levels from the agents' perspective, the management's choice of 95% confidence might be conservative. Agents, who are on the ground making real estate decisions, might prefer a higher confidence level (e.g., 99%) for greater assurance, or a lower level (e.g., 90%) to accept wider margins for quicker decisions or lower costs. Higher confidence levels expand the confidence interval, which provides more certainty but reduces precision, whereas lower confidence reduces costs but increases uncertainty. These tradeoffs must be weighed carefully; agents may favor narrower intervals at the expense of some certainty, especially when market conditions demand rapid decisions.

In conclusion, selecting the Silver package is a balanced approach, offering meaningful insights into the Northeast housing market at a reasonable cost. However, the choice of confidence level should be aligned with the risk tolerance of the agents and management, considering the practical implications of interval width and certainty in their decision-making process.

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