Latent variable
 

 

An unobserved or not directly measurable variable whose values can be inferred from the observed or measurable variables, for example the degree of happiness or confidence, life quality, etc. Latent variables arise, for example, in the application of factor analysis to find a common factor that explains the variance of observed variables. See also proxy variable.

 

Reference: Oxford Press Dictonary of Economics, 5th edt.