I just finished a book[1] that explains this pretty clearly. Dissonance between reality and a person's self-image (i.e. "I am difficult to fool") is often 'resolved' in favor of the more important factor, which is the person's self-image. So they deny reality.

[1] http://www.amazon.com/Mistakes-Were-Made-But-Not/dp/B003HFFI...