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Introduction
Model representation
Data type
Steps to perform
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Introduction
Exploratory Factor Analysis
Definition
Objective
Assumption
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Definition
Analyze the structure of the interrelationship
(correction) among a large set of decision
variables to determine whether the
information can be summarized into smaller
set of factors
that is decision variables that are corrected with one
another but largely independent to others are
combined into factors
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example
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example
For example, a retail store manager wants to know the
store performance in order to develop an action plan. He
identifies 80 variables to identify the store performance.
However, developing an action plan with 80 specific
variables will becoming troublesome.
So, can the manager summarize those 80 specific variables
into smaller set of factors?
Yes! He/she can adopt the exploration factor analysis to
identify the underlying dimension of those variables, and
then group those variables that are interrelated to each
others --- statistically, that is
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Objective
To summarize the information contained in
the number of decision variables into
smaller set of factors subjected to its
minimum loss of information
it provides as a tool to better interpret the results of
observations when a large number of decision
variables is grouped into smaller set of factors
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Assumption
Given that we have a correction matrix for
all decision variable, a general guideline is
that a correction which has a value greater
than 0.3 in a correlation matrix among some
decision variables is considered as
significant
Note that: later, we will examine different criteria
are to be applied to control to those corrections
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Model representation
The Basic model representation of exploratory
factor analysis is:
R=FFT
where,
R = Correlation Matrix
F = Factor Matrix
FT = Factor Matrix Transpose
example
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example
For Example,
Correlation Matrix
A
B
-.953
-.091
-.091
A
B -.953
C -.055
D
-.130
-.036
C
-.055
-.036
.990
D
-.130
.990
Factor Matrix
Eigenvalue
A
B
C
D
2
Factor I
-.400
.251
.932
.956
Factor II
.900
.947
.348
.286
1.91
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R= -.400 .900
.251 -.947
.932 .348
.956 .286
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Data type
Variables for exploratory factor analysis should be
represented in a metric form. When the variables
in non-metric form, data transformation should be
adopted (Hair et al, 1998).
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Steps to perform
Five Simple steps to follow:
1. Testing assumption
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2. Selecting proper sample sizes
3. Extracting factors
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4. Rotating factors
5. Refining and labeling factors(to p18)
Example
,
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1. Testing assumption
Two tests:
a. Barlett test of sphericity
A statistical test for the presence of correlations among the
variables. It determines if the correlation matrix has significant
correlation to some of decision variables
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3. Extracting factors
Two common methods
1. Principal component analysis
transform the original set of variables into a smaller set of
linear combinations that account for most of the variance of
the original set
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The result is the same for both methods, thus in practice we just randomly
pick one and Principal component analysis
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Rotating factors
When the factors are extracted, factor loading is obtained.
Factor loadings are the correlation of each variable and the
factor. When rotating the factors, the variance has been
redistributed so that the factor loading pattern and
percentage of variance for each of the factors is difference.
The objectives of rotating is to redistribute the variance
from earlier factors to later ones to achieve a simple,
theoretically more meaningful factor pattern, and make the
result easily to be interpreted. There are three rotation
methods (Hair et al, 1998): 1) Quartimax, 2) Varimax, 3)
Equimax.
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Factor Loadings
After the rotation, redistribution of factor
loading is obtained. Hair et al (1998)
provide a guidelines for indentifying
significant factor loadings based on sample
size which shows in the Table 2.
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Labeling factors
Finally, when a factor solution has been obtained, ie all
variables have significantly loaded onto a factor, label or give
a name to each factor that makes up by their variables Here,
variables with higher loadings are considered more important
and have greater influence on the name or label the factor
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Example
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Step 1
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Step 2
Assumed that the sample size is 103
observations which is 10 times greater than
the number of variables (Hair et al, 1998).
The sample size is thus quite good for the
exploratory factor analysis.
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Step 3
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Step 4
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Step 5
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