In both M1 and M3, the Oracle bakes cookies when Neo goes to see her. I do not believe the cookies appear in the movies for the sole purpose of adding to the Oracle's warm grandmother character. I believe the Oracle uses her cookies to pass influencing code to other humans and programs. Remember that the Merovingian is able to easily transmit and run a program “in a woman” by means of disguising the program as food. The secondary purpose of that scene was to demonstrate the Merovingian's belief in cause and effect, although we certainly didn't need such an elaborate scheme to demonstrate an example of the Merovingian's simplistic outlook. The primary purpose of that scene was to clue the audience in to the fact that food can transmit code.
So, what did the cookies transmit?
The first time we see the Oracle bake cookies in M1, she gives one to Neo. Remember that M1 ends that very same day: after Neo eats the cookie, Morpheus is captured by Agent Smith, and then Neo goes back into the Matrix to rescue Morpheus. We see Neo briefly at the phone booth inside the Matrix (19 months after M1 began), but this scene doesn't tell us anything about Neo except that he is now on a mission to free as many minds as possible.
Not until M2 do we get to see the full effects of the changed person Neo is after a decent amount of time has passed (six months). We learn that Neo can no longer sleep well, and that he has visions. When Neo begins speaking to the Oracle in the park scene, the Oracle tells Neo, “I know you’re not sleeping. We’ll get to that.” Although they never talked about his lack of sleep again in the conversation, she did tell Neo that he now has the sight of the world without time (and this sight is what wakes him up). The Oracle gave Neo a small part of her "eyes" through the cookie he ate in the first movie.
Some think that Neo started seeing visions of the future because he rejects some rule of the Matrix that causes visions of the future. This makes no sense. First of all, although Neo does have a constant wireless "connection" to the Source, Neo isn't actually jacked in to the Matrix when he has his visions, so there are no rules that he can break. Second of all, no such rule exists where its rejection causes accidental prediction of the future.
In M2, the Merovingian says, “It is said they [the eyes of the Oracle] cannot be taken, they can only be given.” I believe that is exactly what the Oracle did for Neo through her cookie in M1. Remember that the Oracle is an actual machine in the real world. The Oracle's sight of the world without time is nothing more than calculations based on input she receives from inside and outside the Matrix. It is not a supernatural ability, and neither is Neo's sight. But having the sight involves having the right kind of access to the Source, enabling a connection to all people within the Matrix. This connection had to be proactively granted to Neo. Again, the eyes of the Oracle can only be "given".
Why would sight of the world without time wake Neo up? As I argue in Colors, Neo's mind is wirelessly connected to the Matrix through the Source when he produces these dreams. To say the least, a lot more is going through Neo's mind when he is dreaming than what goes through our minds when you or I dream. Once each vision is finished, the process of disconnecting from the Matrix may be what wakes Neo up.
While I believe the cookie in M1 gave Neo the vision of Trinity dying, I think the candy may have given Neo the vision of the power lines that would not only prompt Neo to consider the option of going to Machine City, but would also actually help navigate him to Machine City. Neo first had this vision in M3 when he was in the train station trying to figure out how to get himself out of the station. Why in the world would that vision suddenly flash in front of him when he's trying to concentrate on something else? If he truly had the same depth of vision the Oracle had, he would have seen that all he needed to do to get out of the station was wait for Trinity to show up. This particular short vision was way too convenient to be a random result of Neo's anomalous summation.
Also, consider that the only two visions Neo has (Trinity dying and the power lines going to Machine City) are, very conveniently, the two visions that Neo needed to have most in order to make two key decisions the Oracle needed him to make. The visions were not Neo's doing - they were part of the Oracle's grand scheme of manipulation of the entire system.
I do have another theory about what the candy did to Neo. The candy could also be a "patch", or a software update to the anomaly summation encoded in Neo. Remember that Neo is the "integral anomaly", meaning that he is a summation of all rejection in the Matrix. If Neo is going to make a single counter-choice to cancel out all rejection in the Matrix, how does the system account for all the new natural redpills that have appeared since Neo was unplugged from the Matrix in M1? Since Neo is unplugged, the Prime Program is no longer able to directly encapsulate rejection into him, and if the Oracle is indeed the Prime Program (which I do believe), it only makes sense for her to give Neo an "update".
Before eating the Oracle's candy, the summation of rejection in Neo was six months outdated. Neo returns to the Source directly from Machine City only one or two days after his conversation in the park with the Oracle, so this "patch" candy would make his summation sufficiently up-to-date. Perhaps the candy was a two-in-one package, giving Neo the vision and anomaly updates he needs to finish doing the Oracle's bidding.
If the Oracle's candy is indeed a patch for the One, Machines would need to prevent Zionists from hacking the Matrix in order to minimize the number of rejections that occur inside the Matrix until Neo reaches the Source. That is exactly what happens by the end of M2 and the beginning of M3, right after Neo gets the candy, as the conversation at the beginning of M2 confirms:
Morpheus: Niobe. My apologies to all. As you are undoubtedly aware, it has become increasingly difficult to locate a secure broadcast position.
Vector: Squiddies got all our best spots.
Ice: Mainlines are crawling with them.
Why would Zionists suddenly find it nearly impossible to hack into the Matrix after a century of successful hacking? Obviously, Machines have been letting them. Sure enough, the Vigilant and Nebuchadnezzar are destroyed by sentinel bombs within minutes of each other, and the remaining ships would have been destroyed in the Zion dock if they hadn't been sabotaged by Bane.
Having said all that, it is important to note that we never actually see Neo eat the candy that the Oracle gave him. However, we also don't see Neo drop it on the ground, put it in his pocket, nor do we see the Oracle putting the candy back into her purse. Which makes more sense to you? I think Neo ate the candy, but an alternate theory is presented below.
I also believe the Oracle used her cookies to cause Smith to say, "Everything that has a beginning has an end, Neo." We know that was the Oracle's doing since Smith had never called him Neo before - he always called him Mr. Anderson. Of course, Smith threw the Oracle's cookies against the wall and probably didn't eat them later on. But it is easy to assume that Smith took a bite from a cookie in Sati's paper bag.
Someone who wishes to be known as Seraph from Sweden wrote to me his reasoning for thinking that Neo did not eat the Oracle's candy in M2:
I think the Wachowskis just wanted people to assume he ate the candy, while on closer inspection finding out he actually doesen't eat it. I think that if Neo really ate it, we would have seen him put it in his mouth.
This makes additional sense when considering that he takes the cookie in M1 and eats it because he doesen't know what the heck is going on anyway, so he might as well eat the cookie that is offered to him. In M2, he takes the candy but puts it away, which I think has to do with his knowledge that the Oracle may be part of the system of control and his uncertainty about whether or not to trust her. And in M3, he flat out rejects the candy that is offered to him.
Seraph from Sweden is focusing the following part of the conversation between the Oracle and Neo:
Neo: If I had to guess, I'd say you're a program from the machine world. So is he.
If this is true, then his choices in M1, M2 and M3 (accepting the cookie, keeping the candy, and rejecting the candy, respectively) would perhaps symbolize Neo's disrespect for authority and the path the Oracle leads him down in order to be the first One to defy the system.
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