Please watch it again and pay closer attention to the animation quality.... its actually quite technically difficult to pull this sort of thing off. The episode is also full of foreshadowing clues since chronologically it occurs toward the end of the story.
I actually recommend that people not used to stream-of-thought literature watch episode 1 last rather than first. Start with episode 2 and keep in mind that this only *LOOKS* like a typical high school romance-y thing. It gets seriously Twilight Zone rather quickly (the episodes are presented in a 'gestahlt' overview of the timeline rather than in chronological order).
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