To build on this point, however, it is important to understand that the illusion of self comes from the ability of memory to tie together these transitory self-referential experiences and suggest that they are bound together like the beads on a rosary.
The complexity resides in the fact that memory itself is a phenomenon that simply cannot be trusted to give us an accurate description of the past.
Most people have the naive idea that our memories exist like some sort of video tape recorder that records our experiences and stores them somewhere where they can be retrieved more-or-less the same way we had them in the first place. This is not true at all, however. Indeed, it turns out that memories can be constructed through suggestion.
Take for example the famous case of the Swiss psychologist Piaget. He had a very vivid memory of an attempted kidnapping where unknown attackers were fought off by his nanny.
"I can still see, most clearly, the following scene, in which I believed until I was about fifteen. I was sitting in my pram, which my nurse was pushing in the Champs Elysees, when a man tried to kidnap me. I was held in by the strap fastened round me while my nurse bravely tried to stand between me and the thief. She received various scratches and I can still see vaguely those on her face. Then a crowd gathered, a policeman with a cloak and a white baton came up, and the man took to his heels. I can still see the whole scene, and can even place it near the tube station."
It turns out, however, that Piaget's memory was totally false. Years after the fact his nanny spontaneously confessed that for some reason she had made the entire episode up. Piaget could only surmise that his vivid recollection could only be the result of the many times he had heard her repeat the story to others.
A lot of sad stories exist about how our naive understanding of memory has resulted in terrible persecution of innocent people. Take a look at this very informative essay by an expert in field to see how easy it is for a "therapist" to convince people that they have memories about things that simply did not take place. This might be just an interesting piece of information if it did not also come with the knowledge that a great many people have been wrongfully accused and convicted of crimes they never committed. See this modern example. Pick away a bit more at this thought and consider the following: a great many people are convicted by eye-witness testimony at criminal trials. But as the above links show, memory can be very easily manipulated by police and others simply by the way they conduct their interviews with people. Lest people still believe that they know what they see, take a look at the video at this link.
If it is possible to have totally false memories planted in our minds simply because someone else strongly suggests that they did in fact happen, and that even when we are distracted we can miss a great deal, then we should be really careful when we consider our own self-image. Is our perception of what happened to us in the past an accurate record of what really happened? Or is it some sort of conditioned reflex that comes from the culture we inhabit?
I know in my case I sometimes have to watch myself with my memory because I have extremely vivid dreams. The issue is that these dreams seem so real that I begin to think of them as events that really have happened to me. For example, I have a very strong memory of going fishing once when I was a child and seeing a tanker truck emptying its load into a crystal clear stream with fish in it. It seems like a memory, yet I cannot for the life of me remember a time, place or opportunity where I could have possibly seen this thing happen. (I grew up on a dreary farm and my childhood consisted of work and very little else.)
There are several very famous stories in Daoist literature about dreams, perhaps the greatest being Zhuangzi's inability to tell if he were a philosopher dreaming he was a butterfly or a butterfly dreaming he was a philosopher. I suspect that most people see this as an amusing story, but I suspect that if we really did think about the relationship between dreams and our consciousness we'd be really, deeply disturbed. Most of us go through our lives without having this point deeply affect us. But the mindfulness that comes from neidan practice points out the ultimate hallucinatory experience of being alive.
I once took a very strong dose of magic mushrooms and experienced the full gamut of what we normally call "hallucinations". Two things really stood out. The first was sitting on my bed and watching my alarm clock running backwards. The second was some sort of strange "self evident" realisation that it was patently absurd to be afraid of dying. The more I think about that experience and the really powerful role that my dreams have in the way I look at the world, the more I question the self-evident facts of my personal existence. I suspect that a fully realised man might have his "common sense" so shaken by this sort of thing that he no longer experiences the world around him in a similar way to ordinary folks.