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Derivation of Theory by Means of Factor Analysis or Tom Swift and His Electric Factor Analysis Machine


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  • J.S. Armstrong

    (The Wharton School)


Problems 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 Info

Paper provided by EconWPA in its series General Economics and Teaching with number 0502004.

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Length: 6 pages
Date of creation: 04 Feb 2005
Date of revision:
Handle: RePEc:wpa:wuwpgt:0502004

Note: Type of Document - pdf; pages: 6
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Keywords: factor analysis;

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Cited by:
  1. Robert MacCallum, 1983. "A comparison of factor analysis programs in SPSS, BMDP, and SAS," Psychometrika, Springer, vol. 48(2), pages 223-231, June.
  2. A. Oumlil & Joseph Balloun, 1994. "Some simple structure significance tests for exploratory component analysis with market survey data," Quality & Quantity: International Journal of Methodology, Springer, vol. 28(4), pages 371-381, November.
  3. Charles Sherman, 1972. "Nonmetric multidimensional scaling: A monte carlo study of the basic parameters," Psychometrika, Springer, vol. 37(3), pages 323-355, September.


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