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Have you tried using the quick selection tool. It is paired with the magic wand, keyboard shortcut "w," depending on which you have selected as the tool.

Regarding resetting preferences, it is not something you will find under preferences. It is what you do upon startup of the program. Take another look at the link I posted for you and Steve outlines the steps.

Anyway, I still don't know why your selection is disappearing. That is just whacked. That is why I suggested resetting pref's or re-installing the software. Otherwise, I am stumped. If you use the quick select tool, try setting it to auto-enhance to select the edges more accurately. I feel like we're going around in circles . . .

Also, you can go directly to select>modify>feather rather than refine edge if all you wish to do is add a feather.