Anderson leads Kathryn and Jim into an art gallery. Does anyone else find it telling that Anderson went with the group that Kathryn was in? I'm just saying. It's filled with conceptual art, like a noose arranged in the shape a question mark. Their test will be to create a piece of art to be displayed in the gallery. An art critic will visit, and try to pick out their piece. If the critic picks the wrong one, they get $20,000. As they walk to the studio, Anderson asks if either of them have ever created art before. Kathryn says she hasn't done so for a critic, and Jim says critics are "a bunch of phony-baloneys anyway." Phony-baloneys is a funny thing to say.
Back at El Rancho Sheepero, Steven comes up with a strategy, which is basically to be "slow and cautious, and not try to run and spook them in a thousand different directions." Steven and the dog start leading the sheep. Charlie starts running, of course, and spooks them. Steven voice-overs that he's frustrated because he and Charlie are trying to do different things. Some random guy walks over and Charlie gets a stick from him, and starts yelling out "Heche!" No, not like Anne Heche. It's pronounced "Hee-chay." Apparently, that random guy told him it's some magic sheep herding word. Steven voice-overs that he had no idea what Charlie was doing. Charlie yells it about twenty more times while running after the sheep.
Jim and Kathryn, meanwhile, are trying to create something using a bunch of items strewn around the studio. They start out with a wooden box, and Jim says, "Box is a trap. Box is hidden. Box is box." Anderson totally cracks me up by deadpanning, "I think it was Jim who said, 'Box is box.'" He's really having fun with this. Jim throws a plastic tube next to the box, claps his hands, and says, "Genius."
Meanwhile, back at the ranch, Charlie yells "Heche!" about a hundred more times. It's really annoying. The sheep seem to be just going wherever they want. The footage is sped up to make it funnier.
Kathryn and Jim work on their art some more. Kathryn puts a boxing glove halfway out of the box, and then another one, attached by a piece of rope, on the ground. Anderson notes that it "speaks of desperation." Jim says, "Exactly! The clawing." Anderson says, "No, it was actually more of your desperation." They laugh. Anderson observes that the boxing gloves say "Charlie" on them, and wonders if that means The Mole is Charlie.
Jim and Kathryn decide to create a few pieces, and then pick the best one. Their next piece involves sawing one leg off a chair, and then replacing the leg with a mask, and some books. Anderson says that he's heard that Picasso found many of his materials in "a city dump." Jim asks if that's true, and Anderson smiles and shrugs, "So I've heard." He is getting a lot of entertainment out of this one. Kathryn interprets their latest work as "using your identity and learning and balance." Okay, that's a bit of a stretch.