To make single-indicator latent variables more
concrete, say the reliability of the scores for X1 and X2
are both .70. Figure 7 contains a path diagram of the
regression model with these imperfectly-measured
variables. Note the addition of the error and true score
components for X1 and X2. In addition, while the
correlation and regression coefficients are the same as
those from Example 1, the residual variance has
increased from 0.685 to 0.816 because the R2 decreased
after modeling their unreliability.