The phenomenon described in the question, where the stars appear higher in the sky than they actually are, can be explained by atmospheric refraction. Atmospheric refraction occurs because the Earth`s atmosphere is composed of different layers of varying density. When light from celestial objects such as stars enter the Earth`s atmosphere, it bends or refracts due to the change in the density of the air.

Option 2, dispersion of light, refers to the separation of light into its constituent colors. While dispersion can occur in certain cases, it does not explain why the stars appear higher in the sky.

Option 3, total internal reflection, occurs when light is completely reflected within a medium and does not exit. This phenomenon does not apply to the behavior of stars in the sky.

Option 4, diffraction of light, refers to the bending or spreading of light waves as they pass through an opening or encounter an obstacle. Diffraction is not the main reason why the stars appear higher in the sky.

Therefore, option 1, atmospheric refraction, is the correct explanation for why the stars seem higher in the sky than their actual position.