Choosing the number of factors to retain in an exploratory factor analysis is the methodological decision that most determines what the analysis reports. Retain too few and the model collapses real distinctions between constructs into a single muddled dimension; retain too many and the model dignifies measurement noise as substantive structure. The decision is unavoidable, the methods for making it are several, and decades of comparative research have produced no single approach that dominates across all conditions. Finch (2020), in Educational and Psychological Measurement, evaluates fit-index difference values against the field-standard parallel analysis under a wide range of simulation conditions and reports a result that sharpens which method to reach for in which case.
The factor-retention problem
EFA represents observed item correlations as the product of latent factor loadings plus residual variance. The number of factors is a free parameter; the analyst supplies it, and the analysis returns the loadings conditional on that choice. The job of a factor-retention method is to estimate a defensible number of factors from the data themselves rather than from the analyst’s prior expectations. The methods fall into three rough families: methods based on eigenvalues of the correlation matrix (Kaiser’s “eigenvalues > 1” rule, Cattell’s scree test), methods based on simulation (Horn’s parallel analysis, Velicer’s minimum average partial correlation), and methods based on goodness-of-fit comparison across models with different numbers of factors (the fit-index family that Finch focuses on).
The Kaiser rule has been thoroughly discredited by simulation work; it consistently overestimates the number of factors and is now treated as a baseline rather than a recommendation. Cattell’s scree test is visual and depends on subjective judgment, which makes it hard to teach and impossible to automate. Parallel analysis (Horn, 1965; Glorfeld, 1995) and Velicer’s (1976) minimum average partial (MAP) test are the field-standard simulation-based methods. The fit-index family is newer in this application and has not been comprehensively benchmarked until recently.
What parallel analysis does and where it succeeds
Parallel analysis compares the observed eigenvalues of the data correlation matrix to the eigenvalues that would be obtained from random data with the same number of items and respondents but no factor structure. The number of factors retained is the number of observed eigenvalues that exceed the corresponding random-data eigenvalues. The intuition is that a factor worth retaining must explain more variance than would be expected from chance.
Horn’s (1965) original formulation used the mean of simulated eigenvalues; Glorfeld (1995) showed that the 95th percentile is more conservative and reduces the over-extraction tendency that the mean version inherits. Modern implementations in the R psych package and in similar tools default to the Glorfeld 95th-percentile variant. Parallel analysis works well under continuous indicators, normally distributed data, and moderate-to-high factor loadings. It struggles when item distributions are categorical or skewed, when factor loadings are small, or when the underlying structure has highly correlated factors that the random-data baseline does not capture.
Velicer’s (1976) MAP test takes a different approach: it computes the average squared partial correlation between items after sequentially extracting components, and retains as many components as minimize this quantity. MAP is less prone to over-extraction than parallel analysis but can under-extract in the presence of weak factors. Both methods are widely cited as defaults in introductory texts, with parallel analysis usually preferred for its simulation-based interpretability.
The fit-index difference approach
Confirmatory factor analysis (CFA) and structural equation modeling (SEM) routinely use fit indices — the comparative fit index (CFI), Tucker-Lewis index (TLI), root mean square error of approximation (RMSEA), and standardized root mean square residual (SRMR) — to evaluate whether a specified factor model fits the data adequately. Hu and Bentler (1999) supplied the cutoff conventions that the field has been arguing about ever since: CFI ≥ 0.95, TLI ≥ 0.95, RMSEA ≤ 0.06, SRMR ≤ 0.08 for adequate fit.
The fit-index difference approach to EFA factor retention treats the EFA as a series of CFA-like models with increasing numbers of factors and computes the change in each fit index as factors are added. The number of factors retained is the smallest number where adding another factor produces a negligible improvement in fit. The intuition is similar to the scree test but applied to fit indices rather than to eigenvalues, and it is automatable rather than dependent on visual judgment.
Finch (2020) operationalized this by setting threshold differences in CFI, TLI, RMSEA, and SRMR — for instance, the model is preferred over the smaller-factor alternative if CFI improves by more than 0.01 — and tested the approach against parallel analysis across a factorial simulation that crossed sample size, factor loadings, number of factors, and item type (continuous vs categorical).
What Finch (2020) found
Two practical conclusions emerged. First, fit-index difference values outperformed parallel analysis for categorical indicators across most conditions. Categorical data violate the continuity assumptions that parallel analysis implicitly relies on, and the random-data baseline is less informative when item responses are bounded by ordinal scales with limited values. Fit-index methods, when computed with appropriate estimation for categorical data (WLSMV or robust MLR), handle this case more gracefully.
Second, fit-index difference values outperformed parallel analysis when factor loadings were low, even with normally distributed indicators. Weak factors are the case where parallel analysis’s random-data baseline is closest to the real eigenvalues, so the discrimination between signal and noise becomes unreliable. Fit-index methods, by contrast, accumulate small improvements in fit across multiple indicators and can detect weak factors that parallel analysis misses.
For the bread-and-butter case — continuous indicators with moderate-to-high factor loadings — parallel analysis remained competitive with fit-index methods, and either approach was defensible. The advantage of fit-index methods was specific to the harder cases (categorical or weak loadings), not a general superiority that warrants displacing parallel analysis as the field’s default.
Practical implications for analysts
The methodological lesson is that no single factor-retention method is universally optimal, and analysts should choose based on the characteristics of their data:
- Continuous indicators with moderate-to-high loadings: parallel analysis (Glorfeld 95th-percentile variant) is reliable and well-established.
- Categorical or ordinal indicators: fit-index difference values with appropriate estimation (WLSMV) are more reliable than parallel analysis, which assumes continuity.
- Weak factor loadings (under ~0.4): fit-index methods detect factors that parallel analysis misses; the cost is a higher false-positive rate that needs to be weighed against the substantive interpretability of the additional factor.
- All cases: report the result of multiple methods, not a single one. When parallel analysis, MAP, and fit-index methods agree, the factor-retention decision is robust; when they disagree, the disagreement is the finding, and the analyst should report the alternatives and choose on substantive grounds.
The reproducibility-friendly practice is to specify the factor-retention method in advance, apply it mechanically, and report any post-hoc deviations explicitly. Choosing the method after seeing the result — running parallel analysis, getting two factors, running fit-index methods, getting three, reporting whichever supports the preferred narrative — is the analytic flexibility that gives EFA its bad reputation in confirmatory disciplines. The remedy is preregistration of the method, not abandonment of EFA.
Where this fits in the broader factor-analytic methodology
Factor retention is the first of several decisions that shape an EFA result. The choice of rotation criterion (oblimin, geomin, varimax) determines how the loadings are presented; choice of estimator (MLR, WLSMV, ULS) determines how robust the fit indices are to assumption violations; treatment of missing data, sample size, and item distributions all interact with the factor-retention decision in non-obvious ways. The Finch 2020 contribution sits at one corner of this multi-dimensional methodological space, and the lesson generalizes: the right factor-retention method is the one that matches the data’s properties, not the one that the analyst learned in graduate school.
The unifying theme across modern factor-analytic methodology is that automated software produces a single answer per dataset, and the user is encouraged to trust it. The right discipline is to run the analysis under multiple defensible specifications, examine where the results agree and where they diverge, and report the divergences as part of the substantive story. Factor retention is one of the easier methodological choices to subject to this multiple-method discipline; the cost of running parallel analysis, MAP, and fit-index methods on the same data is minutes, and the additional information about robustness is non-trivial.
Frequently Asked Questions
Why has Kaiser’s “eigenvalues greater than 1” rule been discredited?
It consistently overestimates the number of factors, sometimes by large margins. The rule was developed for a specific application (principal components on a particular type of correlation matrix) and does not generalize to factor analysis on real data. Modern simulation work has shown it is wrong substantially more often than it is right. It is now used only as a baseline against which better methods are compared.
Should I always run parallel analysis?
For continuous indicators with normally distributed items and moderate-to-high factor loadings, yes — it is a reliable default. For categorical or ordinal indicators, or for cases with weak loadings, parallel analysis can over- or under-extract, and fit-index difference values (Finch, 2020) are a defensible alternative.
What’s the difference between Horn’s parallel analysis and Glorfeld’s variant?
Horn (1965) compared observed eigenvalues to the mean of eigenvalues from simulated random data. Glorfeld (1995) replaced the mean with the 95th percentile, which is more conservative and reduces over-extraction. Modern implementations default to the Glorfeld variant; if the software calls it “parallel analysis”, check which percentile it uses.
How do I choose between EFA and CFA?
EFA is appropriate when the factor structure is unknown or contested; CFA is appropriate when a specific structure is hypothesized in advance. The decision is about the analyst’s prior knowledge, not about the data themselves. EFA findings should not be used to confirm a structure on the same data they were derived from; that is the standard EFA-then-CFA-on-different-samples workflow.
What if different methods give different numbers of factors?
Report the disagreement and reason about it substantively. If parallel analysis suggests two factors and fit-index methods suggest three, the third factor is likely a weak one that parallel analysis is missing or that fit-index methods are over-detecting; the substantive interpretability of the third factor is the deciding evidence. Pre-registering the method and reporting alternatives is the reproducibility-friendly practice.
References
- Finch, W. H. (2020). Using fit statistic differences to determine the optimal number of factors to retain in an exploratory factor analysis. Educational and Psychological Measurement, 80(2), 217–241. https://doi.org/10.1177/0013164419865769
- Glorfeld, L. W. (1995). An improvement on Horn’s parallel analysis methodology for selecting the correct number of factors to retain. Educational and Psychological Measurement, 55(3), 377–393. https://doi.org/10.1177/0013164495055003002
- Horn, J. L. (1965). A rationale and test for the number of factors in factor analysis. Psychometrika, 30(2), 179–185. https://doi.org/10.1007/BF02289447
- Hu, L., & Bentler, P. M. (1999). Cutoff criteria for fit indexes in covariance structure analysis: Conventional criteria versus new alternatives. Structural Equation Modeling, 6(1), 1–55. https://doi.org/10.1080/10705519909540118
- Velicer, W. F. (1976). Determining the number of components from the matrix of partial correlations. Psychometrika, 41(3), 321–327. https://doi.org/10.1007/BF02293557