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Denial is trashing what somebody else has set up or is trying to set up. There are many forms:
Mime Denial: Somebody spends five minutes setting the dining room table, another character walks right through it. This will make the audience squirm and gasp and have a general sicky feeling.
Character Denial: Not letting the other person be what she wants to be.
--Hi, I'm your Dentist.
--No you're not. You're my gastroenterologist!
Location Denial: Contradicting setting information someone else established.
--What are you talking about? We're in a helicopter!
The denying actor is not reacting to the presented information. Denial makes audience and cast uncomfortable. All denial can be rectified with Justification, but it's a real skill.
People advanced in improv can tell the difference between bad denial and comedic denial. In the latter, denial can make sense within in the logic of the scene: i.e., if Don Quixote were the helicopter pilot, he may say "periscope down" and need to be corrected by his straight-person assistant. However, it requires a lot of respect (the opposite of denial) to get to the point where the audience understands that the captain is a Don Quixote.
Furthermore, experienced actors may appear to deny each other when playing games of one-upsmanship, but, upon closer inspection, they are accepting the information the other presents, then adding to it and raising the stakes. For example:
--Now you shall die by my sword, certified to be the sharpest in the land. Schiiing.
--Sharpest in the land! You mean you don't import your swords? Scha-schiiing.
The response accepts what was stated, and one-ups it by finding a way to beat it without denying it. A denying response would be, "Well, your certificate lies. Shluuung". Accept and justify the information that others provide. It makes the scenes flow easier, and is simply less aggressive than denying what your fellow actors have created.
Two exercises can help people overcome the denying urge. One is playing the denial game (i. e., playing out scenes where every line denies the other character's previous line) to make one another conscious of the bad habit. Another rehearsal exercise, just for beginners helps to point out each others denials in scenes: simply respond to your fellow actor's denials with "there's no denying that!".