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What does Hamlet mean in saying: "...for there is nothing either good or bad but thinking makes it so" in Act II, scene ii?

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This takes place when Rosencrantz and Guildenstern, Hamlet's good buddies from school, mysteriously show up at the palace. Actually it is not so much a mystery. Hamlet is on to them pretty quickly. The King and Queen have, of course, sent for them to weasel information out of Hamlet. When they show up, Hamlet goes into his half-crazy routine. He speaks in riddles and basically has his way with his two friends. Hamlet talks about Denmark being a prison. Rosencrantz counters with "We think not so, my lord." Hamlet retorts that it's all in a person's perception and he happens to think that it's a prison. In a sense Hamlet isn't kidding. With his father's death, his ghost and mother's hasty marriage, Hamlet does feel trapped.