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The question of consciousness is one of the most slippery in modern psychology, biology and philosophy. For many years the word, like the term mind, was avoided whenever possible by practitioners of the hard sciences. In recent years, however, a push has emerged to better explain and understand the process.
Philosophically, at its most basic level, consciousness may be said to be the process of a thinker focusing the thought on some aspect of existence. This may be external or internal, and may exist in the realm we think of as the subconscious (such as dream states). These experiences are collectively known as qualia, and are the building blocks of the philosophical discussion surrounding consciousness.
Physiologically, a number of processes have been identified with what we consider consciousness. Specifically, interfacing between layers of the brain is considered crucial to conscious activity, and when this interaction is impaired (as in deep sleep), consciousness is considered to be absent.
Psychologically, it is important to distance consciousness from its more colloquial use as meaning simply "awake". Psychologists would assert certainly that while dreaming, for example, we are conscious, even though we are not in a waking state. Conversely, we are unwilling to grant the label of conscious to most animals, even though they are able to regulate between waking and sleeping.
In the psychological framework, consciousness rests on a few necessary preconditions:
The ability to generalize a small part of an object into a larger object or collection of objects is crucial. Young infants and many animals are unable to discern, for example, that the legs of a person and the head of a person belong to the same entity, if some sort of barrier to vision is placed across the central section. Conscious beings are able to see part of a street and identify it with an entire street, and from there perhaps even with a grid that makes up a town or city.
The capacity to live things out in one's mind before they occur in the real world is another feature of consciousness. Setting up hypothetical situations based on real-world knowledge, and deducing possible outcomes from that knowledge, before trying it out in the real world is crucial to conscious thought.
A sense of time is another feature of consciousness. Many consciousness-altering drugs and states affect this area first. Time may dilate or contract, or act in strange ways. Fundamentally, though, a conscious being is able to set things in a loose temporal order, and think about an abstract future.
The sense of self is the last major feature. Being able to view the world through one's eyes and recognize that oneself is the player viewing the world. The classic test used for consciousness in animals (though no longer having much credibility) was placing a mirror in front of the subject, placing something on their body outside their range of vision (such as paint on the top of their head), and seeing if they attempted to remove the paint when faced with their own reflection. This is thought by some to indicate that the subject has a clear sense of self which they recognize even in an abstracted form. The sense of self also emerges as an internal narration, often unnoticed by the conscious being, cataloging all events as they occur.
Many animals over the years have been attributed consciousness by various groups, and there is no clear answer one way or the other. For many years language was considered a valid test, but it fails to include non-communicative beings who are nonetheless considered to be fully conscious (such as feral humans). Various tests for consciousness reach different conclusions in regards to animals. The mirror test, for example, finds all of the great apes (except for gorillas), dolphins, and humans over the age of 18 months to be conscious.
The origin of consciousness is another area of great discussion. Some hold that it is simply a computer-like algorithmic process which takes place locally in the physical structure of the brain. Others suggest it is a quantum mechanical phenomenon, which is non-local. Still others hold that it is an emergent property of the brain's complexity, and there is an explanatory gap which cannot be filled.
As our understanding of consciousness increases, so too does our confusion. The questions of whether fetuses and animals are conscious, where it comes from, and whether we are able to create it in the form of computers, will all be great discoveries in the years to come.
From years long studies, I suggest that consciousness is a feeling of self and mind is the reflection of some form of bio-chemical process happening in our brain.
Whenever this activity is derailed due to wrong combination of bio-chemical materials, there is insanity born. This can now easily be re-railed by psychiatrists through applying necessary medication.
In my opinion, the key to understanding consciousness is in its origin. Read the Origin of Consciousness by the Breakdown of the Bicameral Mind by Julian Jaynes, Ph.D. It will explain why we think what we think and therefore, why we behave the way we behave.