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The King tries to psyche her out and, after finding that it was folly and realizing it was a bit of a cheap tactic, rips his arm off as a way to correct his mistake. Interesting, in the anime there was a shot showing him grab his arm, I believe. But, in the manga you only see her face and then the blood splatter on her. I don't really prefer one over the other but I thought it was interesting anyway.
Still, The King's assertion that desire and fear can blind and paralyze people is very much true. It's just this girl, as she goes on to describe, is not like this. One thing that really kind of hits me is how she says she will be useless whenever she loses at Gungi, this is something she says her parents even told her. I mean, what kind of shitty family is that? But, considering what we know of the situation in East Gorteau, it isn't too surprising that these kind of circumstances exist.
Anyway, this apparently provides Knov the opportunity he needs to infiltrate the palace.