Confidence interval for difference in means when variances are unknown and equal
Let $x_1, x_2, \cdots, x_{n_1}$ be a random sample of size $n_1$ from a population with mean $\mu_1$ and standard deviation $\sigma_1$.
Let $y_1, y_2, \cdots, y_{n_2}$ be a random sample of size $n_2$ from a population with mean $\mu_2$ and standard deviation $\sigma_2$. And the two sample are independent.
Let $\overline{x} = \frac{1}{n_1}\sum x_i$ and $\overline{y} = \frac{1}{n_2}\sum y_i$ be the sample means of first and second sample respectively.
Let $s_1^2 = \frac{1}{n_1-1}\sum (x_i -\overline{x})^2$ and $s_2^2 = \frac{1}{n_2-1}\sum (y_i -\overline{y})^2$ be the sample variances of first and second sample respectively.
Let $s_p=\sqrt{\dfrac{(n_1-1)s_1^2+(n_2-1)s_2^2}{n_1+n_2-2}}$ be the pooled standard deviation.
Let $C = 1-\alpha$ be the confidence coefficient. Our objective is to construct $100(1-\alpha)%$ confidence interval for the difference $\mu_1-\mu_2$.
The margin of error for the difference of means is
$$ \begin{aligned} E = t_{\alpha/2,n_1+n_2-2} s_p\sqrt{\frac{1}{n_1}+\frac{1}{n_2}} \end{aligned} $$
where $t_{\alpha/2,n_1+n_2-2}$ is the value from $t$ statistical table for desired confidence coefficient and degrees of freedom.
Then $100(1-\alpha)%$ confidence interval estimate for the difference $(\mu_1-\mu_2)$ is
$$ \begin{aligned} (\overline{x} -\overline{y})- E \leq (\mu_1-\mu_2) \leq (\overline{x} -\overline{y}) + E. \end{aligned} $$
Assumptions
a. The two samples are independent.
b. Both the samples are simple random sample.
c. The two samples are both large ($n_1 > 30$ and $n_2 >30$) or both the samples comes from population having normal distribution.
d. The two population variances $\sigma^2_1$ and $\sigma^2_2$ are unknown but equal.
Step by Step Procedure
Step by step procedure to estimate the confidence interval for difference between two population means is as follows:
Step 1 Specify the confidence level $(1-\alpha)$
Step 2 Given information
Given that $n_1, n_2$, $\overline{x}$, $\overline{y}$, $s^2_1$, $s^2_2$. The pooled standard deviation is $s_p=\sqrt{\dfrac{(n_1-1)s_1^2+(n_2-1)s_2^2}{n_1+n_2-2}}$.
Step 3 Specify the formula
$100(1-\alpha)%$ confidence interval estimate for the difference $(\mu_1-\mu_2)$ is
$$ \begin{aligned} (\overline{x} -\overline{y})- E \leq (\mu_1-\mu_2) \leq (\overline{x} -\overline{y}) + E. \end{aligned} $$
where $E = t_{\alpha/2,n_1+n_2-2} s_p\sqrt{\frac{1}{n_1}+\frac{1}{n_2}}$.
Step 4 Determine the critical value
Determine the critical value $t_{\alpha/2,n_1+n_2-2}$ from the $t$ statistical table for the desired confidence coefficient and degrees of freedom.
Step 5 Compute the margin of error
The margin of error for the difference of means is
$$ \begin{aligned} E = t_{\alpha/2,n_1+n_2-2} s_p\sqrt{\frac{1}{n_1}+\frac{1}{n_2}}\\ \end{aligned} $$
Step 6 Determine the confidence interval
$100(1-\alpha)%$ confidence interval estimate for the difference $(\mu_1-\mu_2)$ is
$$ \begin{aligned} (\overline{x} -\overline{y})- E \leq (\mu_1-\mu_2) \leq (\overline{x} -\overline{y}) + E \end{aligned} $$
Thus, $100(1-\alpha)%$ confidence interval estimate for the difference $(\mu_1-\mu_2)$ is $\big((\overline{x} -\overline{y})- E , (\overline{x} -\overline{y}) + E\big)$.
