Building latent class trees, with an application to a study of social capital

Researchers use latent class (LC) analysis to derive meaningful clusters from sets of categorical variables. However, especially when the number of classes required to obtain a good fit is large, interpretation of the latent classes may not be straightforward. To overcome this problem, we propose an alternative way of performing LC analysis, Latent Class Tree (LCT) modeling. For this purpose, a recursive partitioning procedure similar to divisive hierarchical cluster analysis is used: classes are split until a certain criterion indicates that the fit does not improve. The advantage of the LCT approach compared to the standard LC approach is that it gives a clear insight into how the latent classes are formed and how solutions with different numbers of classes relate. We also propose measures to evaluate the relative importance of the splits. The practical use of the approach is illustrated by the analysis of a data set on social capital.