Factor Analysis
A data reduction technique that identifies underlying variables (factors) that explain the pattern of correlations within a set of observed variables.
Implications
A statistical method used to identify underlying relationships between variables by grouping them into factors, often used in psychology, market research, and finance to reduce data complexity and identify key drivers of behavior or performance.
Example
Example: A market researcher uses factor analysis to identify key dimensions of customer satisfaction, such as service quality, product reliability, and price, helping to focus improvement efforts.
Related Terms
Different from principal component analysis (PCA), which also reduces dimensionality, factor analysis is more focused on identifying latent variables that explain observed correlations.
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