Derivation of Theory by Means of Factor Analysis or Tom Swift and His Electric Factor Analysis Machine
AbstractProblems in the use of factor analysis for deriving theory are illustrated by means of an example in which the underlying factors are known. The actual underlying model is simple and it provides a perfect explanation of the data. While the factor analysis 'explains' a large proportion of the total variance, it fails to identify the known factors in the model, The illustration is used to emphasize that factor analysis, by itself, may be misleading as far as the development of theory is concerned. The use of a comprehensive, and explicit à priori analysis is proposed so that there will be independent criteria for the evaluation of the factor analytic results.
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Bibliographic InfoPaper provided by EconWPA in its series General Economics and Teaching with number 0502004.
Length: 6 pages
Date of creation: 04 Feb 2005
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