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The basic notion of irony is a contrast between presentation and reality. Through its long and complex history, the term "irony" has acquired many senses. Here is an overview of a few different kinds of irony. For a more detailed discussion, see the entry in The New Princeton Encyclopedia of Poetry and Poetics. The earliest articulate notion of irony is that of Aristotle, who describes it as "mockery of oneself", and "the contrary to boastful exaggeration; it is a self-deprecating concealment of one's own powers and possessions; it shows better taste to deprecate than to exaggerate one's powers." The classic example of this type of irony is the figure of Socrates in the Platonic dialogues. There he dissembles as one who is ignorant and seeks to learn from others, but by his insistent questioning he shows that his interlocutor shares his ignorance.
In classical rhetoric, irony was a figure that outwardly expressed a meaning directly opposite that intended; it was essential to the success of the figure that audience understand the speaker's intention despite the apparently opposed expression of that intention. This sense of irony was adumbrated in the Middle Ages in many complex figures based on irony.
Dramatic irony is a plot device by which the "(a) the spectators know more than the protagonists; (b) the character reacts in a way contrary to that which is appropriate or wise; (c) characters or situations are compared or contrasted for ironic effects, such as parody; or (d) there is a marked contrast between what the character understands about his acts and what the play demonstrates about them." (Encyclopedia of Poetics p. 635) It is dramatic irony that we find in realist art, which portrays the conflict between the subject and his or her aspirations and the harsh realities of the objective world to which the subject must conform or die. In realist art, the spectators usually understand fully the limitations of the protagonists' understanding, thanks to the "omniscient narrator"; the dramatic interest lies in how the character develops and encounters a fate which the audience already knows about.
This form of irony shades into another irony, a kind of ironic consciousness of the limitations of one's own understanding, and a scepticism about one's own motivations. This latter form of irony becomes particularly prominent with the rise of Freudian views of human psychology which hold that many of our motivations are determined by unconscious mechanisms over which we have no control.
It is this ironic consciousness that infuses modernist art with a scepticism about the artist's ability to understand the logic of events in a story as an objective happening separated from the artist's own perspective and particular motivations. Eventually this ironic consciousness is broadened to a suspicion of how the forms of story-telling themselves are shot through with interest, and how their claims to a "neutral" cogency can be seen as false. The artist becomes conscious of the deception of believing that he or she is specially positioned to make sense out of his or her own work; where in realism the world was shown to betray the protagonist, in modernism the work often betrays the artist. This scepticism reaches a climax in postmodernism, with its strong consciousness of the contingency of genres and forms, and its suspicion of all established conventions.