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


  • 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.

Suggested Citation

  • J.S. Armstrong, 2005. "Derivation of Theory by Means of Factor Analysis or Tom Swift and His Electric Factor Analysis Machine," General Economics and Teaching 0502004, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpgt:0502004
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    Cited by:

    1. repec:eee:touman:v:62:y:2017:i:c:p:218-233 is not listed on IDEAS
    2. James Bennett, 1978. "Imperialism on a swallowtail: Applications of catastrophe theory to international relations," Quality & Quantity: International Journal of Methodology, Springer, vol. 12(1), pages 1-17, March.
    3. repec:eee:aumajo:v:26:y:2018:i:4:p:369-381 is not listed on IDEAS
    4. Charles Sherman, 1972. "Nonmetric multidimensional scaling: A monte carlo study of the basic parameters," Psychometrika, Springer;The Psychometric Society, vol. 37(3), pages 323-355, September.
    5. Robert MacCallum, 1983. "A comparison of factor analysis programs in SPSS, BMDP, and SAS," Psychometrika, Springer;The Psychometric Society, vol. 48(2), pages 223-231, June.
    6. 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.
    7. Patil, Vivek H. & Singh, Surendra N. & Mishra, Sanjay & Todd Donavan, D., 2008. "Efficient theory development and factor retention criteria: Abandon the `eigenvalue greater than one' criterion," Journal of Business Research, Elsevier, vol. 61(2), pages 162-170, February.

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    factor analysis;

    JEL classification:

    • A - General Economics and Teaching

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