There is a popular theory, sometimes called the Batman Villain fan theory or Bruce Wayne crazy theory, which suggests the caped hero is a patient at Arkham Asylum. The theory says that Bruce Wayne developed a life-altering mental illness after witnessing his parents' death, and had to enter Arkham Asylum since Alfred wasn't able to properly care for him. Instead of training to fight the bad guys who hurt his parents, young Wayne's psychosis became more severe, causing him to imagine becoming the hero Batman. While this isn't how comics typically play out, it does sound more plausible in the real world.
The theory further suggests that each of Bruce's imagined villains are a reflection of his own psyche, which he casts upon his fellow patients and health care workers in Arkham. Each villain represents a separate part of his mental state, as he uses his Batman fantasy as a form of personalized therapy. While some villains are insane, others are violent, and a few are sometimes caring. If you examine the main villains, this theory sounds more plausible.
The Killer Clown of Crime is Batman's foil, but his insanity represents a part of Bruce's psyche unlike any of the other villains. The Joker's love of chaos opposes Batman's need for order, which contrasts the hero's beliefs, but none so much as his so-called "one rule," which prohibits him from killing people.
The Joker's penchant for murder and mayhem, as well as his complete disregard for order illustrates the fine line Bruce/Batman must skirt whenever he defeats a criminal, as he may come close to killing, but never does. The Joker is his way of living out his murderous fantasies. How much easier would Batman's life be if he killed the many villains on his list? If he were to give in to his baser instincts vis-à-vis the Joker's representation of his psychosis, he wouldn't be Batman anymore, but his life would appear simpler... much like the Joker's.see more on Joker
Harvey Dent served as the district attorney of Gotham City before someone attacked him, turning him into the disfigured villain known as Two-Face. His background working in the Justice Department, coupled with his duality and internal conflict, suggests he represents Bruce's need for justice. Batman's tendency to enact vigilante justice has some parallels to Dent.
The negative side of Dent's personality mirrors Bruce's willingness to succumb to his dark side to bring justice to Gotham. Two-Face flips a coin to make decisions, while Batman chooses a path he already set; both men compromise their beliefs to accomplish their goals.see more on Harvey Dent
The Riddler has a few quirks, but none so obvious as his need to puzzle those he considers beneath his intelligence. While he loves a good riddle, the Riddler has more to him than that. He's wildly intelligent and functions best when he has a foil. This is where Batman comes into play. And the fact that Bruce may be imagining a genius to contest his wits against suggests he sees much of himself in the Riddler.
Batman is an obsessive character, much like the Riddler, so it's no surprise he would see himself in his enemy. Like the Riddler, Bruce needs to keep his intellect challenged. The only dissimilar aspect of their character is how Edward Nygma uses his tactics and skills to lead a life of crime, while Bruce fights crime. In any other setting, they would probably be old friends who play chess every Sunday afternoon.see more on Riddler
Mr. Freeze is one of Gotham's most tragic figures, as he is a victim who lost his wife - and his life, in a way. Forced to live within his self-made enclosure to survive, he remains apart from the rest of humanity. On the surface, his intentions are good, though he goes about handling them in criminal ways. The key aspects of his character are loneliness and isolation, which makes sense for this theory if you consider Bruce's situation.
After losing his parents, Bruce became isolated and alone. Forced to live in Arkham Asylum, Bruce grew increasingly isolated. He sees his own loneliness in Freeze's character, which is why the villain is a perfect representation of the loss and pain Bruce feels every day since his parents' demise.see more on Mr. Freeze