Human perception, which functions by fusing simultaneous streams of sensory information, works on the assumption that if auditory and visual stimuli occur in proximity—close in both space and in time—they must be caused by a single source, the one you see. So when we watch lips moving in sync with an unrelated sound, our brain simply denies the confusion, the strange coincidence of these two events, and instead processes them as though they were one very normal speech act. Thus, a ventriloquist can modulate his voice to make it sound near or far, as though it were muffled in a box, or gurgling up from underwater, but he doesn’t actually “throw his voice” in any particular direction; he just tosses it to the audience and they—their eyes, their brain—place it in the lips of the dummy.It's certainly an interesting mixture of art and science, although I've never been that much of a fan myself. (quote and link via TDD)
This accounts for why post-Enlightenment ventriloquism continues to be bothersome. The problem lies not in the nefarious methods or motivations of the ventriloquist but rather in what it says about us, about our capacity for self-deception. True, the effect may be orchestrated by a sordid stranger in a Hawaiian shirt, but it is we who carry out the illusion. Nor does an understanding of the ventriloquist effect free us from its power. On the contrary, it forces us to witness just how pitifully our brain glosses over problems, how seamlessly it weaves its convenient answers. Our sensory system is as much a puppet as the duck with the googly eyes. As it turns out, there is wisdom in that old routine in which the dummy turns to his master and says, “No, you’re the dummy.”
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The art of ventriloquism
THE ART OF VENTRILOQUISM: Avi Steinberg explains: