When he's sticking his head out of the porthole, Teddy notices that someone has dumped a garbage can of orange peels into the ocean. Our first thought is that the orange peels demonstrate Teddy's natural curiosity and interest in the world around him. "They float very nicely," he says; "that's interesting" (2.15). But Teddy's thoughts quickly turn from child-like observation to guru-like philosophizing:
"If I hadn't seen them [the orange peels], then I wouldn't know they were there, and if I didn't know they were there, I wouldn't be able to say that they even exist. […] Some of them are starting to sink now. In a few minutes, the only place they'll still be floating will be inside my mind. That's quite interesting, because if you look at it a certain way, that's where they started floating in the first place. If I'd never been standing here at all, or if somebody'd come along and sort of chopped my head off right while I was –" (2.17-19)
Unfortunately, Teddy's parents cut him off (yet again), so we don't get to hear his conclusion. But what we do see is that Teddy is no ordinary ten-year-old. At the least, he's unusually preoccupied with philosophy, and at best, as we suspect later, he's a genius/guru/prophet. This dialogue also paints a great contrast between Teddy, philosophizing about reality and perception, and his parents, who are obsessing over the material possessions (the suitcase, the camera), or daily distractions (i.e., the morning's swimming lesson).
But the orange peels do more than exemplify Teddy's preoccupations. We should take a look at the content of his orange peel comments, particularly the last thing he says (ever, it turns out) to his parents as he leaves their cabin:
Teddy lingered for a moment at the door, reflectively experimenting with the door handle, turning it slowly left and right. "After I go out this door, I may only exist in the minds of all my acquaintances," he said. "I may be an orange peel." (2.35).
Let's delve into Teddy's thought process a bit. He first notices the orange peels floating – that's pretty straight forward. He thinks it's interesting, which makes sense coming from a ten-year-old who is still learning which things float and which things sink. Then he notes that, if he hadn't seen the orange peels, he wouldn't have known that they existed. That's fair, right? Now comes the trick part: what if he had never seen the orange peels? Would they still exist?
This is actually a restatement of the old philosophical riddle: "If a tree falls in a forest and there's no one there to hear it, does it still make a sound?" If you've read Shmoop's "What's Up With the Epigraph?", than you know all about the concept of a kōan, a.k.a. a riddle with no logical answer. This is a prime example of the second hidden kōan we've uncovered in "Teddy" (see the epigraph discussion for info on the other one: "What is the sound of one hand clapping?").
What this kōan is getting at, and what Teddy is getting at in his orange peel discussion, is the connection between reality and perception. Is reality dependent or independent of perception? What's so interesting is that Teddy applies this argument to himself: his own existence may be tied to others' perceptions of him. Most interestingly, we can think about Teddy's death in the context of such a premise. Remember his explanation to Nicholson about Sven and his dog. If Sven dreamed that his dog died, everything would be OK when Sven woke up. If Sven's dog dies in real life, everything will be OK when Sven dies himself – or "wakes up" in a very different sense. The dog's death is only "real" while Sven, still living, thinks that it is real. Teddy's death might only be "real," then, in the sense that Nicholson,, Booper, and the McArdles perceive it to be real.
On the other hand, who actually witnesses Teddy's death? Nicholson doesn't – he only hears Booper's scream, and then the story ends. We, the readers, certainly do not, which is why some readers claim the ending is ambiguous. We don't actually see Teddy die. An interesting question, then, driven by Teddy's orange peel comment, would be: if we don't see Teddy's death, then does Teddy's death actually happen? Or does it only exist when it is perceived? The ending of "Teddy" brings us back to the kōan our protagonist first introduced at its start when contemplating the orange peels.