They lied to him about his "father" (the only father he ever knew) dying at sea right before his eyes during their sailing outing together back when he was just 12 or 13 years old. That whole event was a deliberate trauma they inflcited upon him in order to induce his phobia of crossing water (and thus preventing him from ever leaving the island).
No. It would not be legal. Deliberately traumatizing a child in such a manner as to achieve an actual diagnosible neurosis in him would not be tolerated.
But would money be able to get around it?
Possibly.
But the whole point of the movie (actualy there were 2 or 3 points to the movie, but I'll pick just onefor the sake of this thread) wasn't truly about whether it could happen per se, but rather that reality TV (and especially the voyeuristic versions of reality TV) is a potential slippery slope leading toward ever-greater debacles of perverse inhumanity to the human subjects of the TV shows. The sick twisted thing about reality TV is that we are usually GAWKING AT the human subjects, never FEELING WITH them (thus voyeurism). This film helped us to feel with him on profound levels of depth and empathy, and therefore helped us to acquire what I shall call a "correct" distaste of this type of show. That's why his name was Truman -- he was a "true man" not just a charcater on a screen. We needed to feel with him and empathize with him in every molecule of his humanity. Our failure to do so would have meant that the film would have been a complete failure. But Jim Carrey -- the ideal choice to play Truman, and he deserved that Golden Globe he got, and he especially deserved the Oscar nomination that he did NOT get -- successfully made us feel for him every step of the way, and so the film did indeed work. (The most moving moment for me was when he said to Laura Linney: "You can't stand me." It went right through my soul when he said that. Any other actor would have uttered that line with anger and flipancy. But Carrey found the most haunting poignancy in that line, and I am still brought to tears by that one line every single time.)
Slippery slope TV was also covered (with far less genius than The Truman Show) in The Running Man.