This movie reminds me of the story "Mad, Rooster and Man", using this state that I am more mad than you to heal a mad man, but who can say who is mad? You think a man who thinks he is a cock is a madman, and you think a man who thinks a bouncy doll is real is a maniac, so why do you think you think you are a man or a maniac?
So, I don't think Lars is crazy. He was just too insecure, his mother had a difficult labor because of him, his father was weak and unable to take care of him, and his brother left him early in the morning. . . No one in his childhood could give him love and give him a sense of security. So he can only live in his own world, protect himself, and take care of himself. So he is afraid of being touched by others, he does not touch people, he finds hugs unacceptable, and he does not believe that others will care about him. His love for Bianca is his love for himself, and it is also his awareness of his loneliness. In fact, for a child, being able to realize loneliness is itself a kind of growth.
Lars wasn't hallucinating either. The arrival of Bianca didn't change him at first. He just stopped being aggressive towards the outside world because he had a self-righteous sense of security. The reason for this was that he was still living in his own world. Seeing other people's love for him, he is reluctant to admit it. But his sister-in-law's words awakened him, he began to realize that others cared about him and loved him, so he gradually got better, because he was willing to change, it was the love of the people around him that gave him courage. So he "deliberately killed" Bianca because he wanted to grow up and become a man, and he understood that only by giving up Bianca would he be able to walk out of the past and into reality.
So, this movie is like the expression in "A Beautiful Mind": love heals everything.
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