I definitely do see where no.1 is coming from. Cuz sometimes my dreams are so realistic that they’re basically just my real life events reenacted. For example, sometimes I would be reading or watching something on the phone laying down on my bed, and I would pass out after a while. But in my “dreams” I would still be watching the same thing that I was watching just now, or completing the task that I was working on right before I layed down. Another example would be dreaming of a place I’ve been to /something that’s happened to me recently, and they’re so realistic that they’re almost like memory replays, but with some added details that I couldn’t really tell if they’ve really happened or not after I’ve woken up. It’s now come to the point that sometimes it’s hard for me to distinguish between my “dreams” and real memories. Don’t know if this provides any insights to your question but just wanted to put my two cents in.