The correct answer is - The insane live in a reality of their own.
The narrator's reality isn't the same as the old man's reality - this is because the narrator is insane. However, he wasn't always insane - what drew him to madness is the old man's 'eye of a vulture.' He became fascinated with the eye, started hating it so much that he wanted to kill the old man, which he did. After that, his madness didn't go away - it just grew stronger until he admitted his crime.
