Stage 2 sleep is often used as the objective marker of “true” sleep. Yet, throughout the polygraphic era of sleep research, there have been incidental literature reports on the discrepancy between verbal reports of prior behavioral state and the polygraphic recordings of prior behavioral state. Two experiments used a Signal Detection Theory (SDT) framework to systematically assess the extent of this verbal report polygraphic discrepancy in 11 subjects (aged 20‐35) with no sleep‐wake complaints or demonstrable sleep‐wake pathologies. The present work used a 6‐point rating scale with the polygraphic wake state designated as the “Signal” and the polygraphic sleep state (Stage 2 and REM sleep) designated as the “Noise” or blank. The ability to differentiate between polygraphic sleep and wakefulness differed by sleep stage with the discrimination significantly less when arousal came out of Stage 2 sleep rather than out of REM sleep. There was a high false alarm rate out of both polygraphic sleep stage 2 and REM but it was significantly higher out of Stage 2. A priori instruction set and limited performance feedback differentially and significantly affected discrimination and bias by sleep stage. The neuro‐ and psychophysiological implications of this work are discussed in the context of current definitions of the sleep state and characterization of the insomnias.