Psychologists have suggested some mentally-ill patients may be receiving inadequate treatment because they have been diagnosed in "general terms", such as schizophrenia or manic depression.
The British Psychological Society said that diagnosing patients in such terms meant doctors were failing to take account of individual experiences and were failing to treat patients as individuals.
In its report Recent Advances in Understanding Mental Illness, it says "label" like schizophrenia and manic depression are of limited use and say little about the causes of people's distress or what is likely to help them.
Dr Peter Kinderman, a clinical psychologist based at the University of Liverpool and a co-ordinating editor of the report, said general diagnoses had serious weaknesses.
"Diagnosis is a very clumsy shorthand. We think it has serious weaknesses and using a single term for a number of people is, perhaps, a little bit slipshod.
"If you take diagnosis in the way it is traditionally intended then two people with the same diagnosis should, presumably, have the same common illness.
"They should also respond to the same treatment but using these diagnoses can get in the way of individual treatment."
About one person in a hundred is likely to receive a diagnosis of schizophrenia in their lifetime. A similar number will be told they have bipolar disorder or manic depression.
The report suggests that between 10 and 15% of the population experience so-called psychotic experiences such as hallucinations or hearing voices.
Most of these are not diagnosed with schizophrenia, for example, because their symptoms do not distress them.
But those who are most likely to be given such diagnoses include young people, in particular young men, from disadvantaged backgrounds.
'Psychotic'
It adds that many people who experience "psychotic" experiences are not distressed by them and do not attend a doctor and, therefore, are not labelled with a diagnosis.
The report states that psychotic experiences are frequently triggered by "extreme" experiences, such as sleep deprivation.
But it adds that people may react differently to these experiences and varying levels of resistance to psychotic experiences, which can be triggered by a stressful events.
The report also suggests that psychiatrists should ensure psychological approaches are used to treat patients and that they do not depend solely on drugs.
"This report is not anti-psychiatry but one of the things we are saying is that medications have very large and unpleasant side-effects and they don't work for everybody," said Dr Kinderman.
"We believe that using psychological treatments in conjunction with medication can be extremely effective."
The mental health charity Mind welcomed the report. "We welcome its emphasis on psychiatric labels which are unhelpful and are indeed a lottery," a spokeswoman said.
She added that the charity was working with mental health professionals to improve care for patients.