Once more, this is a theory regarding the game only. It can be
combined or not be combined with my ''Inception'' theory. If
you opt to combine it, just assume that what i wrote below is
part of the Inception dream. But i think it's cooler for this
theory to stand itself. So, let's get this started...
I made this theory when i wondered the weird way wins and
losses work in the game. I mean, when you lose, on the one
hand, you have to concede half of your money, which implies
the lost battle counts as a game event (as opposed to most
games, where losing means dying), on the other hand, the
opponent acts like the previous battle which resulted in his
victory never happened. I mean, if you go and try to fight him
again, he acts as if that's the first time he sees you. This
becomes even more obvious in the case of your rival (let's
call him Blue). There are parts of the game where, to progress,
you have to beat him. If a possible victory of his there counted
as a real game event, he'd be satisfied with beating you once
and, next time you went there, you'd be free to pass. But the
fact that Blue blocks the way again and again till you beat him
means those lost battles of yours do not count as game events,
even though you lose half of your money every time.
So, here is my explanation: What if the money Red loses at
those cases never actually go to the victorious trainers?
I theorize that, at some point, before the on screen adventure
started, Red made some agreement with a magician or the
devil or another spiritual force in general. After that agreement,
he gained the ability to reverse time. However, that spiritual
force (be it a magician or a demon or whatever else it might
be) demands for half of Red's money any time he desires to use
that ability of his. This way, Red, who is vain and wants to have
a record as an undefeated champion, reverses time every time he
loses. This can also explain why he loses money even when losing
to wild pokemon. The time reverse effect affects the whole
pokemon world except Red (who's the only one to have memories
of the erased events) and his pokemon (who keep any possible EXP
they gained during the erased lost battle).
However, there is still another weird thing to explain: The pokemon
league! We all know Red can go back and fight the elite four again,
after becoming the champion. But why do the elite four act like they
see him for the first time every time? And, most importantly, why is
Blue still the champion every time? A first guess is that Red reverses
time so that he can fight them again. But, what about Cerulean Cave?
It was stated that, to enter it, you have to be the Pokemon League
champion. Yet, Red can enter it after defeating the elite four, even
though, whenever he goes back to Indigo Plateau, Blue is still the
champion. Also, why doesn't the devil ask for Red's half money
when he reverses time after beating the elite four?
Well, my guess is that time reverse was only the first part of Red's
agreement with the devil. You see, Red is pretty sadistic deep inside
and wants to relive the experience of humiliating Blue again and again.
Alas, the second part of the agreement with the devil would be that,
after Red won the league, Indigo Plateau would be trapped into an
eternal time loop. This practically means that, while, outside of the
plateau, time flows normally and Red is the champion (which explains
why he can enter Cerulean Cave), inside the plateau, time is like a
broken record and the same events repeat themselves indefinitely,
so that Red can have fun humiliating his rival as many time as he
Of course, Red can always get bored of that and undo that spell,
thus allowing the time in the plateau to start flowing normally
again, which is obviously what he did in Gen2, where Blue moved
on with his life.