ORIGINAL:IMO....it's simply a product of our method. You COULD go to a smaller peep.....and center your sight pin inside it. I became much more proficient/accurate when I went away from this method to the one we share, now.
As I suspected, it's diffraction and nothing short of natural sunlight will help the situation. And yes, I too once shot a smaller peep but found that going with a larger peep that I could more easily center the pinguard inside of (because theyboth appeared close but not exact in size at full draw) made me much more accurate. The only drawback being lowlight conditions.
I'd ask....do you get the "halo" effect? It woud depend (not on the size of your peep, necessarily.....but how your peep AND sight housing work together) on your equipment.
Good luck.
Thanks and no, I do not get the halo effect. We do however, shoot on a nearidentical principle. I cannot see the entire outer rim of my pinguard at full draw. What I actually center inside my peep is 1/32" of the the 1/16" thick orange sticker that traces the outer rim. So when I'm looking through the peep, I see a thin orange circle inside the blue peep. This color contrast works excellent outdoors and I groupwell enoughto get the job doneeven at my max range of 40yds.
But as I mentioned, indoors will produce 4inch groups at 20yds. There's definitely somethingamiss when your outdoor groups at 40 are often timesbetter than your indoor groups at 20. The lighting indoors is about the equivalent of last light conditions in the woods and that's where my concern lies.