This is just a personal opinion, so bare with me-
Norman Bates' problems and whatnot I believe directly stem from abuse and PTSD. He either has schizophrenia or dissociative identity disorder. It's unlikely that he would have both.
The idea of schizophrenia to me is because of how he hears and sees his mother at random when no one else can. Some aspects of him are incompatible with true schizophrenia though.
The dissociative identity disorder would be from the past trauma, and it manifesting into different personalities. Thus he takes on the aspects of his mother because of how controlling she's been and always will be in his life, and in order to somehow keep her presence alive, although she's dead. He's emotional from what all she's done to him and that creates some form of anger towards her, or at least a mix of typically bottled up emotions. However he stills wants to keep her presence simply because she's all he's ever really had and the only one who's cared for him (disregarding the abuse).
We know for sure that he has lapses in memory. His mother takes over and he dresses as her to kill, basically slipping out of reality during the time he's his mother. In the lucidity of the moments, he regrets what he's done and know that it's wrong. So I wouldn't say he's completely insane. The trauma and the way his mother was messed him up, but not to rule him completely "insane" as he still experiences different emotions, and has shown multiple times he wants to get better and be free of his mother.
I'd also like to add I believe he has social anxiety and terrible anxiety in general, judging from the way he acts and how he handles certain situations and whatnot.
(I may come back and edit this in the near future-)
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Slasher Headcanons
RandomMy perspective and theories about different movie slashers and killers. So far this includes: Freddy Krueger, Jason Voorhees, Michael Myers, Chucky, Norman Bates, Ghostface, and Hannibal Lecter. Feel free to suggest more for me to add~ (Cover art is...