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The relationship between ego defects and poor reality mastery is explored, using as the tool the sequential development of the dream concept (following Piaget, and Laurendeau and Pinard). A regular sequence of dream concept development, moving from an external and material concept of dreams to
internal and nonmaterial, is demonstrable in normal children. Three diagnostic groups of children were examined: 1, behavior disorder; 2, borderline; and 3, psychotic. The first group differed strikingly from the other two in failing, or showing great difficulty in correctly conceptualizing the origin and location of dreams. All three groups correctly grasped the 'unreal' and nonsubstantial nature of dreams. The author discusses the meaning, in terms of learning theory, of this evidence of disordered boundary formation in children who have symptoms of inadequate reality testing. He supports Kohlberg in a position midway between a purely 'unfolding' theory and a totally environmental (stimulus-response) theory, espousing a 'cognitive-developmental' view of the growing child as part of an interactional system within his surroundings.