A latent variable is a variable that is not directly observed but is inferred from other variables that are measured. It represents underlying factors that influence observable outcomes. For example, in psychology, a latent variable like intelligence may be assessed through various tests, even though intelligence itself cannot be directly measured. Latent variables are commonly used in statistical models, such as factor analysis and structural equation modeling. These models help researchers understand complex relationships between observed variables by identifying the hidden factors that drive them. This approach is valuable in fields like social sciences and market research.