Oracle: I know you're Neo. Be right with you.
Neo: You're the Oracle?
Oracle: Bingo. Not quite what you were expecting, right? Almost done. Smell good, don't they?
Oracle: I'd ask you to sit down, but your not going to anyway. And don't worry about the vase.
Neo: What vase?
Oracle: That vase.
Neo: I'm sorry.
Oracle: I said don't worry about it. I'll get one of my students to fix it.
Neo: How did you know?
Oracle: What's really going to bake your noodle later on is, would you still have broken it if I hadn't said anything.
Right away, the Oracle establishes her credibility to Neo by demonstrating not only that she can see the future, but also that she can also change it. This ability to "bake others' noodles" means the Oracle can see many alternate futures depending on what she chooses to say.
Oracle: You're cuter than I expected. No wonder she likes you.
Oracle: Not too bright, though.
The Architect later tells Neo that Neo is the first One who is in love with a specific person (as opposed to the previous five Ones' more general love for humanity). The Oracle also told Trinity that she would fall in love with the One. Their love is one of the many noodles the Oracle "bakes".
Oracle: You know why Morpheus brought you to see me?
Neo: I think so.
Oracle: So, what do you think? You think you're the one?
Neo: I don't know.
Oracle: You know what that means? It's Latin. Means `Know thyself'. I'm going to let you in on a little secret. Being the one is just like being in love. No one can tell you your in love, you just know it. Through and through. Balls to bones. Well, I better have a look at you. Open your mouth, say Ahhh.
Oracle: Okay. Now I'm supposed to say, `Umm, that's interesting, but...' then you say...
Neo: But what?
Oracle: But you already know what I'm going to tell you.
Neo: I'm not the one.
Oracle: Sorry kiddo. You got the gift, but it looks like you're waiting for something.
Oracle: Your next life maybe, who knows? That's the way these things go.
Notice that the Oracle never tells Neo that he isn't the One. Neo says it, and the Oracle merely lets Neo believe it. In fact, she tells Neo that he has the gift, and she also tells him that belief in himself is the only thing holding him back (he's "waiting for something"). And, in vague terms, she even tells Neo that he will believe in himself after he dies and comes back to life (his "next life").
In M3, Neo asks the Oracle who decided it wasn't time for him to know the truth about who he is. The Oracle points to her sign above the door, prompting Neo to answer his own question with, "I did." The above conversation exerpt is exactly what Neo remembered: Neo is the one who said, "I'm not the one."
The Oracle knows Neo is the One, but she doesn't want him to believe he's the One quite yet. Why? Keep reading.
Oracle: What's funny?
Neo: Morpheus. He...he almost had me convinced.
Oracle: I know. Poor Morpheus. Without him we're lost.
Neo: What do you mean, without him?
Oracle: Are you sure you want to hear this? Morpheus believes in you, Neo. And no one, not you, not even me can convince him otherwise. He believes it so blindly that he's going to sacrifice his life to save yours.
Oracle: You're going to have to make a choice. In the one hand you'll have Morpheus' life and in the other hand you'll have your own. One of you is going to die. Which one will be up to you. I'm sorry, kiddo, I really am. You have a good soul, and I hate giving good people bad news.
If the Oracle had told Neo that he is the One, then Neo may have believed Morpheus when Morpheus said, "You must get Neo out. He's all that matters." But since the Oracle allowed Neo to believe that he isn't the One (and therefore his life doesn't matter as much as Morpheus's life), Neo was willing to go back into the Matrix to rescue Morpheus. This set up an entire chain of events that wouldn't have otherwise happened: Neo dodged bullets of the Agent (prompting Trinity to tell Neo that he moves like Agents), Neo fought Agent Smith in the subway station and won, and Neo realized that he doesn't have to die inside the Matrix after Smith killed him.
But what was the real purpose of all this? Surely the Oracle could have still caused Neo and Trinity to fall in love without Neo's having to die, not to mention Tank, Dozer, Apoc and Switch. I believe the real purpose to this chain of events was to arrange a meeting between Neo and Smith in such a way that Neo would destroy Agent Smith and help create the Smith virus. This will be discussed in more detail later in the Smith: The New Smith page.
Oracle: Oh, don't worry about it. As soon as you step outside that door, you'll start feeling better. You'll remember you don't believe in any of this fate crap. You're in control of your own life, remember?
This is the first hint that we get from all three movies about the struggle between fate and choice. Morpheus and Neo both believe that "everything begins with choice". What Morpheus and Neo don't realize, however, is that the Oracle is a program from Machine City. There is nothing supernatural about her ability to see the future - it is just mathematical calculations on the Oracle's part based on all of the input she receives from inside and outside the Matrix. All the Oracle is really doing is seeing a certain timeline in the future with the ability to fast forward and rewind that timeline at will, so there is nothing to "believe in". This timeline does not change unless she decides to change it.
Even so, Morpheus and Neo are still correct. They are in control of their own life. They are still making choices for themselves. Are they really supposed to believe that they are bound to a certain fate just because someone else (whether it be a human, a machine, or God Himself) happens to know exactly what their choices will be? The choices are still being made whether knowledge of those choices existed beforehand or not.
This whole dilemma simply boils down to which perspective you choose when you look at the Matrix. The Oracle and Neo/Morpheus are both correct from their own perspectives.
Oracle: Here, take a cookie. I promise, by the time you're done eating it, you'll feel right as rain.
To me, it is very clear that the Oracle's cookie is more than just food. In M2, we spend a great deal of time watching the Merovingian send a program disguised as a slice of cake to a woman. Are we honestly supposed to believe this was all for the purpose of demonstrating cause and effect? Even the most stupid audience on the face of the Earth is smart enough to understand the concept of cause and effect without needing such an elaborate example of it.
What the slice of cake is truly meant to show us is that programmers can change things in the Matrix with programs that are disguised as food. Even the red pill that Neo took in the beginning of M1 was a program to disrupt Neo's "input/output carrier signals" to enable Morpheus and his crew to find Neo's pod in the real world.
What sealed this issue for good comes from an online chat session that the Wachowskis held with their fans right after the release of M1. Here is one of the questions and answers:
virtualMatrix: What is the significance of Neo eating the Oracle's cookie?
WachowskiBros: There was a piece cut out of the movie that explained the significance more. It's hard to explain.
This wouldn't be "hard to explain" if the cookie were just a cookie. So, I think the only real question here is, "What did the cookie do?" I believe the cookie gave Neo a small piece of the Oracle's vision into the future. I will support this speculation further in the next conversation page (Conversations: Neo & Oracle (M2)).
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