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As a westerner and former southern baptist perhaps I can shed a little light on what Buddhism has taught me. Keep in mind my views aren't necessarily the same as everyone else's with regards to Buddhist dharma (teachings).
First, the concept of a "soul" is tricky. You're not going to find it called a "soul" in most Buddhist teachings. And this is not just because of the name, but also the difference between individuality and commonality. In general the western view of a "soul" implies a self. A distinct individual that will go on after the demise of its' physical form. That is a concept foreign to most all Buddhist thought. But the delineation does become clouded when we reach the idea of rebirth because rebirth implies individuality. How do we distinguish?
The Isha upanishad tells us that the self is one and everywhere. Instead of calling it the "self" let's call it "awareness". Awareness exists inside us as the chariot driver (Katha upanishad) and the perceptions and sensations and experiences are all part of the 5 aggregates of existence (as taught by the Buddha). Think of it as a balloon being filled from the air around us and then tied off. The air is awareness and the balloon in whole is the person. Whereas before the awareness was boundless and timeless now it can only experience thru limited perceptions and is affected by the ravages of time.
Ideally the air would just remerge into the whole when the body dies. BUT ... there is the issue of karma. Things we do have effects to the world around us and to the quantum world we live within. The double-slit experiment in physics double slit experiment explanation shows us that those very perceptions alter the reality around us, not just now but into the future (and perhaps even the past). This means we changed something and there are ongoing changes or effects that would bear weight upon and potentially alter us but for our physical death. This isnt just some hocus-pocus hogwash either - we are starting to discover it has a physical component in this world and alters our awareness' ability to merge back into the neutral ether. quantum change causes alterations in our cells Here I interject "black box theory" to signify I understand the effects but not the mechanism.
So, in short, we are awareness temporarily limited to residing in this human vessel and when it passes that awareness goes elsewhere. I believe we will eventually find that meditation allows us to clear these micro-tubules in the brain and clear the karmic effects we have initiated and living a simple life while walking the median path brings us closer to preventing rebirth and peacefully going back to the whole. I have found peace in Buddhism that I never had as a Christian just for this reason. I hope this helps you understand. namaste. damayata datta dayadhvam.
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"I don't know anything in depth about Buddhism but as I figure there are three possibilities in life at it's end, either:
the soul is released from the physical world and returns to where it originated from;
the soul remains in the physical world and is then passed on and contained within another living entity; or
the soul remains in the physical world and is not contained within any physical body."
There is no soul.
There are only fabrications due to ignorance.
When life ends, fabrications continue to arise due to ignorance.
What is fabricated has no connection with previous life. It is entirely new.
As long as fabrications are present, the "body" (5 skandhas) is present. The "body" which is present is destined to suffering and death.
Suffering and death continue until ignorance is ended.
Thus, there is no soul nor any incorporeal entities nor body. There is just this cycle of arising and ceasing of "body" (5 skandhas) which is subject to suffering.
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Buddhism as much as I know is based upon transference of souls to other living entities
Birth or rebirth yes, but maybe no "soul".
See existing topics tagged rebirth and anatta for more on this topic (perhaps including this one).
I guess that part of the doctrine is that consciousness is conditioned by contact (e.g. conscious of a sight when seen), and so there's no kind of separate, independent soul; but once you get into trying to describe it, it's hard to stop -- it's a thicket of views:
This is how he attends inappropriately: 'Was I in the past? Was I not in the past? What was I in the past? How was I in the past? Having been what, what was I in the past? Shall I be in the future? Shall I not be in the future? What shall I be in the future? How shall I be in the future? Having been what, what shall I be in the future?' Or else he is inwardly perplexed about the immediate present: 'Am I? Am I not? What am I? How am I? Where has this being come from? Where is it bound?'
As he attends inappropriately in this way, one of six kinds of view arises in him: The view I have a self arises in him as true & established, or the view I have no self... or the view It is precisely by means of self that I perceive self... or the view It is precisely by means of self that I perceive not-self... or the view It is precisely by means of not-self that I perceive self arises in him as true & established, or else he has a view like this: This very self of mine — the knower that is sensitive here & there to the ripening of good & bad actions — is the self of mine that is constant, everlasting, eternal, not subject to change, and will stay just as it is for eternity. This is called a thicket of views, a wilderness of views, a contortion of views, a writhing of views, a fetter of views. Bound by a fetter of views, the uninstructed run-of-the-mill person is not freed from birth, aging, & death, from sorrow, lamentation, pain, distress, & despair. He is not freed, I tell you, from suffering & stress.
how does it deal with the possible existence of incorporeal entities or does it refute the idea?
I think that traditional Buddhist cosmology teaches that there is one category of formless being, i.e. "gods" -- see Formless Realm (Ārūpyadhātu), or Six classes of beings.
Some people say that these descriptions (of beings) represent states of mind.
Anyway, gods live in a formless realm (so, not the "physical world" you wee asking about).
Or there are "ghosts", which may be what you were asking about. Wikipedia says,
Pretas are invisible to the human eye, but some believe they can be discerned by humans in certain mental states.
I assume they have a body (i.e. a form) but whether it's a "physical" body I can't tell you.
It might be hard to distinguish between "Buddhism" and local folk beliefs or traditions -- whether ghosts are "real". I think that Buddhism doesn't say very much about them ... and says that they characterize excessive greed, deceit and so on ... that they arise from being insatiably greedy.
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According to Milindapanha 3.5.5, one is reborn without the need for a transmigrating soul:
The king asked: "Venerable Nagasena, is it so that one does not transmigrate (saṅkamati) and one is reborn (paṭisandahati)?"
"Yes, your majesty, one does not transmigrate and one is reborn."
"How, venerable Nagasena, is it that one does not transmigrate and one is reborn? Give me an analogy."
"Just as, your majesty, if someone kindled one lamp from another, is it indeed so, your majesty, that the lamp would transmigrate from the other lamp?"
"Certainly not, venerable sir."
"Indeed just so, your majesty, one does not transmigrate and one is reborn."
"Give me another analogy."
"Do you remember, your majesty, when you were a boy learning some verse from a teacher?"
"Yes, venerable sir."
"Your majesty, did this verse transmigrate from the teacher?"
"Certainly not, venerable sir."
"Indeed just so, your majesty, one does not transmigrate and one is reborn."
"You are clever, venerable Nagasena."
Ven. Narada Mahathera wrote here about hungry ghosts:
Peta-yoni (pa + ita) lit., departed beings, or those absolutely devoid of happiness. They are not disembodied spirits of ghosts. They possess deformed physical forms of varying magnitude, generally invisible to the naked eye. They have no planes of their own, but live in forests, dirty surroundings, etc.
Milindapanha 3.5.6 states:
The king asked: "Venerable Nagasena, is a soul to be found?"
The elder replied: "According to ultimate reality, your majesty, a soul is not to be found."
"You are clever, venerable Nagasena."