Scope: The scope of this thesis includes a review of existing literature on various theories put forward to explain the reduction of event-related potential component, mismatch negativity (MMN) in the mental illness schizophrenia. Evaluation of existing literature builds the argument for purpose and experimental design of this thesis. Purpose: The purpose of this thesis was to explore the integrity of the inferential process and basis for reduced MMN in schizophrenia. Methodology: The thesis features the application of a novel MMN paradigm to explore what is impaired and what is intact in the inferential process underlying MMN generation in schizophrenia. Sixty-five participants (35 individuals diagnosed with schizophrenia or schizoaffective disorder and 30 matched controls) completed the MMN paradigm together with cognitive testing and clinical assessment. Results: The data indicate that although MMN is smaller in size in this sample (replicating prior research), persons with schizophrenia are equivalent in their ability to reduced MMN size to a deviant when the timing of its occurrence can be inferred from predictive cues. Conclusions and Implications. The paradigm was designed on the assumption that the reduced size of MMN to a predictable deviation reflects a dynamic shift in a perceptual inference model. This process is intact within schizophrenia. However, our data reveal other group differences within the paradigm that have methodological implications for research in this field.