Do characters in a dream have their own separate thoughts or identity? I am very curious as to if any research has been done in this area, or if such a question even can be researched given the current tools and methods available to cognitive scientists. When one dreams, one may experience interactions with other characters, be those characters based on people one knows in their waking life or characters new to the dreamer. I'm interested to understand more about how the interactions between the dreamer within the dream state and these characters inside the dream work.

Do the characters in one's dream actually have their own thoughts? That is, does the mind "sandbox" each character, keeping track of what each dream character is thinking? When characters in a dream speak or act, what determines what actions they will take? Are their words and actions simply based upon a sense of empathy, or does the mind somehow maintain separate "conscious states" for each dream character? (A better word for that is appreciated, if there is one)

Or, as I suspect, is this concept simply too abstract for us to research given our current level of technology and understanding about how dreams work at a fundamental level?

Edit: As an alternative way of asking this question, has any research been done looking for possible relationships between characters within a dream and other better-understood areas of personality, for example multiple personality disorder?
EDIT:  To address the changed question:

Similar to how mental visualization stimulates the same neurons/blood flow that actually seeing something does, I suspect that brain scans will show similar processing occuring during the dream interaction as occur during real interactions.  

The difference is that the brain is creating the entire subjective experience.

The crazy thought is that there isn't a difference though: subjective experience is ALWAYS completely constructed by the brain, though it's constructed through nerve impulses from external inputs such as electromagnetic waves (sight) or physical waves (sound).  During sleep, the body is paralyzed to prevent us from acting out our dreams (which WILL happen if the paralysis is lifted), which implies that sensory data is still coming in (or being generated) and we are simply mis-perceiving it and then trying to catch up.

This was my answer to @alan2here's original question.  It mostly still applies, though is also a mixture of philosophy, psychology, and cognitive neurophilosophy (EDIT: i.e. uncited, lol)
Take this as you will:



First off, this is definitely a philosophy question, but I'll try to stay within the bounds of Cog Sci. No promises though...

From my understanding, the mind does not create consciousness. While this is a very thorny issue, and one I'm not super familiar with, I believe a generally accepted view is that consciousness is a (by-)product of the sheer complexity of the human brain coupled with governing systems and feedback loops (and a hell of a lot more of course!). 

Furthermore, the perceived barrier between the self and separate beings is just that: perception. Differences in physical properties aside, there are no real barriers between anything. Air is just as much a molecule as plastic, and behaves in a remarkably similar manner. The difference is semantics (not unimportant to subjective beings, but objectively the difference is inconsequential). We just can't see it, and we're conditioned to ignore it, so we see a vast gulf of nothingness where there is actually incredible hidden complexity. Also, the notion of self is a misguided one that we're given through culture. As many Eastern philosophies will tell you, the self is a lie! (just like cake).

To address the actualy question though (kinda), I think you unintentionally answered it yourself with this phrase: sentient seeming entities. The 'people' in your dreams are amalgamations of 'people'-like semantic attributes your brain has constructed from your experiences. These seem like real people and can act like real people, but that's because you've met and experienced real people. If you have never met real people, it's very doubtful that any people-like dream constructs will be created (unless generated from mirror reflections).

Lastly, I have to add this caveat: dreams and dream science is still an incredibly unexplored black box. We still don't have a clear idea about why dreams occur and until then, this question is literally unanswerable. In fact, everything I've said may turn out to be false, but we don't really know. That's why this falls under philosophy.

However, I'll leave you with this: assuming that the human mind is an individual entity (and cannot connect with other people through undiscovered mental (physical, likely subatomic and certain microscopic) means), then the people in your dreams do not exist anywhere else nor to anyone else. Therefore: does it matter? It's a completely subjective experience, so only you can decide how to perceive it.