> Where I get confused though is this sentence: "...the story that our self-model comes up to explain (and help predict) our reactions to ourselves". What is "ourselves" here? That implies some observer that the self-model is explaining things to.

That is a good point, language is pretty important in these things. I just meant "ourselves" as the overall brain/mind. That is, the self-model component just feeds these models into the planning component, so that the planning component can decide the next actions to take.