The first step is acknowledging that a conflict exists, and few are inclined to go even this far. However, it is becoming more common for writers to acknowledge that self-deception helps us in various ways, and that a purely accurate appraisal of reality can be harmful to us. Robert Todd Carroll, a righteous skeptic, acknowledges the benefits of the illusion of control and posits that we might be able to get some of the benefits without selling our souls to the faith healer, but wonders how far this limited acceptance of deception might go:
I suppose we could make it a rule that the illusion of control isn't a bad thing as long as it doesn't lead to delusional thinking that results in harm to oneself or others. If we did make that a rule, what would we then say about financial advisers who convince their clients that their system of economic forecasting is a good bet? Are these folks in the same category as people who pray instead of having their child's diabetes treated by a medical doctor?
Once we allow some amount of self-deception in the door for its instrumental benefit, how do we keep it from infecting everything? Perhaps more importantly, once we become admitted deceivers, what standing do we have to cast stones at more egregious deceivers?
Religious folks are even in touch with the conflict, at least as far as it concerns the secular world. Ross Douthat lampoons secular liberalism's lack of grounding in a base value; presumably, he is able to do this because he is comfortable that God really exists as a base value in Douthat's own system. Regardless of his beliefs, what Douthat is pointing out is the function, the instrumental value, of a God or other (pretend) final value upon which all other values, beliefs, acts, and stories may be based. I agree with Douthat that such a base value has an important function; my only disagreement is that such a value (God, in this case) exists.
In The 7 Laws of Magical Thinking (ordered, but I haven't read it yet), Matthew Hutson seems to come down firmly on the side of using self-deception for our benefit. I am interested to see how he proposes to keep us from deceiving ourselves as to precisely what "our benefit" is - not to mention that of others.
Which brings us to cold reading. Why cold reading works is subjective validation: subjects motivated to find meaning in random pronouncements tend to be able to do so. Given vague stimuli - the letter H, the month of May - most subjects are able to think of meaningful events in their lives to link it to. This is, I propose, exactly the same process by which people find meaning in life - interpreting random events in such a way as to feel that they have meaning and fit into a story, confabulating and ignoring evidence as necessary to make the story fit. An observer of humans not committed to the value of truth and factual accuracy might find even label this process healthy.
My challenge to the defender of both truth and meaning is how to distinguish this "healthy" process of finding meaning in life from the process of being a sucker in a cold reading. Or, perhaps, is John Edwards a great benefactor of humanity?