Increasingly used in health-related applications, latent variable models provide an appealing framework for handling high-dimensional exposure and response data. Item response theory (IRT) models, which have gained widespread popularity, were originally developed for use in the context of educational testing, where extremely large sample sizes permitted the estimation of a moderate-to-large number of parameters. In the context of public health applications, smaller sample sizes preclude large parameter spaces. Therefore, we propose a penalized likelihood approach to reduce mean square error and improve numerical stability. We present a continuous family of models, indexed by a tuning parameter, that range between the Rasch model and the IRT model. The tuning parameter is selected by cross validation or approximations such as Akaike Information Criterion. While our approach can be placed easily in a Bayesian context, we find that our frequentist approach is more computationally efficient. We demonstrate our methodology on a study of methylation silencing of gene expression in bladder tumors. We obtain similar results using both frequentist and Bayesian approaches, although the frequentist approach is less computationally demanding. In particular, we find high correlation of methylation silencing among 16 loci in bladder tumors, that methylation is associated with smoking and also with patient survival.