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I guess if you’d rather not be a doctor than have to attend medical school in NJ then yeah, don’t apply to your in state schools. But most people apply to all the places they’re competitive and go where the get in.

Edit: actually, if your thinking is like the above I’d probably advise you to avoid medicine all together. The training process is absolutely hellish (depending on your school or residency) and if you’re the type to be easily deterred you won’t make it.
 
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Well of course I’d rather be a doctor. I think it’s more like I’d rather try twice than stay here on my first try. Is that thinking uncommon?
It's up to you, but I'd view it as a waste of resources and money to apply again when you don't need to.

I'd say apply them, worst comes to worst you go to one, and then residency you can go (mostly) wherever you want if you do well enough/enough networking/aways
 
I think it’s more like I’d rather try twice than stay here on my first try.

Why is applying to IS and OOS schools mutually exclusive in your mind?

There's no guarantee you'll get into IS or OOS schools. There's plenty of time between now and secondary season, so it would seem like you can prepare if you choose to apply broadly.

All that aside, while it's totally your decision where you choose to apply, what is the reticence to applying to the schools where you have the best shot, statistically?

Let's get Freudian. Are you self-sabotaging?
 
Well of course I’d rather be a doctor. I think it’s more like I’d rather try twice than stay here on my first try. Is that thinking uncommon?
Yes. I can't sugarcoat this, but if you're saying "I would rather go through an unsuccessful application cycle before I try for my in-state schools", that thinking is rather pathological.
 
They aren’t mutually exclusive - but I know my IS chances are much higher, although I believe in my ability to get into one of my OOS dream schools. My fear is getting into an IS school I’m not passionate about and always feeling like I could’ve worked harder next cycle to get into a different one.

I don't fundamentally disagree with you on an emotional level. I can understand how it might feel like, in many ways, you've earned the fantasy. You did all the things you thought you needed to do to get it, and applying to other schools invites the uncomfortable possibility of not reaching what you envisioned for yourself.

The thing is, like I said, nobody knows for sure. Maybe this song-and-dance is all for nothing because you applied to whatever your dream school is and get accepted. But there's also a possibility your dream school just...doesn't give you the American Idol golden buzzer slam-dunk response you're hoping for.

And so the question is, what then? Whether your dream school does or does not "send you to Hollywood," so to speak, does not preclude you from applying other places where you could be happy. Just in case. The opportunity cost is a year of an attending's salary.

At the end of the day, medical school is just a training program...it's one thing to acknowledge the benefits of prestige, but it is another altogether to throw the baby out with the bathwater and apply exclusively to prestigious schools.

Anyway, since you're really looking to brace yourself for the reality of this process, here's a video of a 3.95/527 applicant not getting a single interview this past cycle:

 
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Well of course I’d rather be a doctor. I think it’s more like I’d rather try twice than stay here on my first try. Is that thinking uncommon?
It’s uncommon. If you’re gonna get through the wringer that is medical training you almost need a pathological level of devotion to this field. Or a level of overconfidence/zeal/narcissism.

There aren’t very many people willing to work 38 hours in a row just because they’re told (for example)
 
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