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This paper presents a sensitivity study electroencephalography-based source localization due errors in the head-tissue conductivities and to errors in modeling the conductivity variation inside the brain and scalp. The study is conducted using a two-dimensional (2-D) finite element model obtained from a magnetic resonance imaging (MRI) scan of a head cross section. The effect of uncertainty in the following tissues is studied: white matter, gray matter, cerebrospinal fluid (CSF), skull, and fat. The distribution of source location errors, assuming a single-dipole source model, is examined in detail for different dipole locations over the entire brain region. We also present a detailed analysis of the effect of conductivity on source localization for a four-layer cylinder model and a four-layer sphere model. These two simple models provide insight into how the effect of conductivity on boundary potential translates into source location errors; and also how errors in a 2-D model compare to errors in a three-dimensional model. Results presented in this paper clearly point to the following conclusion: unless the conductivities of the head tissues and the distribution of these tissues throughout the head are modeled accurately, the goal of achieving localization accuracy to within a few millimeters is unattainable.