The passage states that when a student lied in front of a discussion group, they overestimated how many people could tell that they were lying. We are told that other research shows that a volleyball player who is playing unusually poorly on court will think that her teammates are noticing her poor playing far more than her teammates actually do notice. Further, other research shows that when one wears a funny t-shirt, far less people actually notice the shirt than the person expected.
What does this tell us? That others are far less aware of your appearance and behavior than you expect them to be.
This is exactly what answer choice (E) states: "People tend to believe their appearance and behavior are noticed by others more often than is actually the case."
Answer choice (C) states: "We are actually less observant of the appearance and behavior of others than we think ourselves to be."
The issue here is that the statements in the passage do not illustrate "us" observing the appearance and behaviors of OTHERS. Rather, it is about comparing what our expectation is of how much others observe our appearances and behaviors to how much others ACTUALLY observe our appearances and behaviors.
Hope that helps! Please let us know if you have any other questions.
