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As far as I'm concerned, both of the verbs "refer" and "allude" are used to mention something indirectly. But the question is how they differ in meaning and where I can use each one? I have made some examples. Please have a look on them and let me know which option suits each example better and why?

  1. Pronouns are often used to ........... to a noun that has already been mentioned.

a. refer
b. allude

  1. He kept ............. to his wife, but didn't mention her name.

a. alluding
b. referring

To me, both of the choices work identically in both of the examples without any particular difference in meaning.

2

Refer can be a direct reference; it has multiple meanings

The verb refer has several meanings (or different shades of meaning).

One of these is:

refer to [somebody/something] -- phrasal verb

  • B2 to talk or write about someone or something, especially in only a few words:

    • In her autobiography she occasionally refers to her unhappy schooldays.

    • He always refers to the house as his "refuge".

  • C1 If writing or information refers to someone or something, it relates to that person or thing:

    • The new salary scale only refers to company managers and directors.

--- Cambridge Dictionary

As you can see, these are very direct references.

Allusions are always indirect

Compare that with allusion which means something that is unsaid:

something that is said or written that is intended to make you think of a particular thing or person:

  • The film is full of allusions to Hitchcock.

  • Her novels are packed with literary allusions.

--- Cambridge Dictionary

In the examples: this means the film does not overtly(Definition) mention Hitchcock.

To your question

The question is asking you to distinguish between - the use of the word refer as in reference, and - the use of the word allude as in allusion.

A reference is often quite direct, while an allusion is indirect and unsaid.

A word to the wise

By the way, don't confuse "allusion" and "illusion". Illusion(Definition) is perhaps a more common word -- they are not the same.

  • @A-friend Refer and Referring (assuming he was saying my wife this/that) – Smock Aug 21 at 14:48
  • Well, then refer and allude. – whiskeychief Aug 21 at 16:33
  • Uh, @whiskeychief here is a conflict between your and Smock's posts! I am just interested to know why Smock thinks that in #2 "referring" sounds better and to you "alluding" works well?! Is it a matter of personal style and preference? Is it a matter of regional (BE/AE) usage? Or it is simply a matter of meaning? – A-friend Aug 21 at 19:04
  • Thank you again @Smock, but could you possibly tell me more about the example #2? It seems that there is a contradiction between your answer and whiskeycheif's response. – A-friend Aug 21 at 19:06
  • Both could be correct, but in test questions you have to pick “the best answer” in the mind of the test writer. The fact that the speaker didn’t refer to his wife by name suggests he was alluding to her. Your interpretation may vary. – whiskeychief Aug 21 at 19:53

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