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Reality testing is the process of objectively distinguishing betweeen the internal world of thoughts and feelings and the external world.
In mental disorders, where this process is limited, a person is said to lack insight and the further breakdown of the distinction between external and internal world is a characteristic of psychosis. For example hallucinations and delusions are taken as signs of a failure of reality testing
The term was first introduced by Freud in Formulations on the Two Principles of mental Functioning.
Reality testing as a developmental task
As cognitive growth and socialization occur it is important that children develop the perceptual, cognitive and sensorimotor skills that enable them to understand their relationship to the external physical and social world and to know the limits of their actions. This process is facilitated by play.