The tilt illusion arises from an efficient reallocation of neural coding resources at the contextual boundary.

The tilt illusion - a bias in the perceived orientation of a center stimulus induced by an oriented surround - illustrates how context shapes visual perception. While the tilt illusion has been the subject of quantitative study for over 85 years, we still lack a comprehensive account of the phenomenon that connects its neural and behavioral characteristics. Here, we demonstrate that the tilt illusion originates from a dynamic change in neural coding precision induced by the surround context. We simultaneously obtained psychophysical and fMRI responses from human subjects while they viewed gratings in the absence and presence of an oriented surround, and extracted sensory encoding precision from their behavioral and neural data. Both measures show that in the absence of a surround, encoding reflects the natural scene statistics of orientation. However, in the presence of an oriented surround, encoding precision is significantly increased for stimuli similar to the surround orientation. This local change in encoding is sufficient to accurately predict the behavioral characteristics of the tilt illusion using a Bayesian observer model. The effect of surround modulation increases along the ventral stream, and is localized to the portion of the visual cortex with receptive fields at the center-surround boundary. The pattern of change in coding accuracy reflects the surround-conditioned orientation statistics in natural scenes, but cannot be explained by local stimulus configuration. Our results suggest that the tilt illusion naturally emerges from a dynamic coding strategy that efficiently reallocates neural coding resources based on the current stimulus context.