1: Denial
Denial is a familiar condition, so familiar that it is used in casual conversation to describe people who insist on their version of the truth in spite of obvious evidence to the contrary - and it is used quite accurately.
Denial can be seen in the overweight woman who wears clothing that is obviously too small. It can also be seen in the corporate spokesman who claims that a product is safe in spite of mounting evidence of the damage it has done to customers.
There are more extreme examples, such as the sisters who refused to bury their mother and kept the corpse in cold storage. They would bring her food, bathe and dress her, and even take her out for lunch each week, and did this for a period of ten years. (The story was reported in 2007, so this is not an odd ninetieth-century affectation.)
Denial is the first of the "five stages of grief" (Toss 1969): denial, anger, bargaining, depression, and acceptance. The knee-jerk reaction to something unpleasant (or something unusual) is that it must not be true.
Highly intelligent and knowledgeable people engage in acts of denial, and either initiate or perpetuate actions that are harmful because they refused (not merely fail) to acknowledge the obvious truth.
Another example of denial is hardcore drug addicts, as the physical and financial effects of their decision to keep up their drug habit are simply denied away - they claim to be recreational users, whose habit does not interfere with their daily life.
The irony is that people are very quick to accept the very same faults in other people. An example is given of a conversation between a doctor and a patient, in which the patient readily accepts that some people have problems with alcohol - the patient cites a number of behaviors, physical symptoms, and other aspects of alcoholism, but refuses to acknowledge that he personifies each of them. (EN: Though in the scenario, the patient ultimately accepts that he might need to quit drinking.)
This is an actual technique called "motivational interviewing" that is very frequently used in counseling people who are in denial, and it is somewhat effective because they do not feel that they are being accused or imposed upon when the topic of conversation is other people - though it doesn't work in all cases, as people cling to their denial.
The motivational interview is an open and non-judgmental style of questioning that is aimed at determining a person's readiness for change, encourage him to recognize the issues fully, the guide him to reason out a solution for himself. Because a person in denial is defensive, guiding him to recognition is necessary to avoid his raising defenses and maintaining a state of self-deception.
While ego defense mechanisms can be subtle, denial of the obvious truth can easily be spotted by a layman - though denial that takes the form of imaginary or invented qualities that cannot be readily witnessed becomes more difficult to assess.
One example is of a psychiatrist treating a patient who is in denial of his homosexuality, and who can cite a number of heterosexual relationships (and deny any homosexual ones) to maintain his denial.
Another difficulty is selective acknowledgement - to fail to notice something that is clearly perceptible, or attempt to "edit out" remarks in a conversation if the patient perceives it as being contrary to his mental construct - or to act is if he perceived something that he did not, such as suggesting that someone else said something they did not.
Those who are in denial can be very clever about manufacturing evidence to support their version of reality, or ignoring or denying evidence to the contrary.