Your brain is causing the sensation. Evolutionarily, if you saw bugs, there was a chance they were on you, and could bite you and lead to illness. By making you itch yourself, you would be more likely to see any bugs on you, and prevent illness. Same thing happens if you see someone itch for a long time, your brain evolved to assume the people you see sleep near you, so it they have ticks, then you might too.
Itching from thinking about it is just a carryover from above
Your brain is basically a neighborhood of neurons that activate when stimulated. Often neighbors activate each other. Usually the neurons that cause you to feel prickly can only be activated by the neurons that see bugs, or feel them actually crawling on your skin.
However, sometimes it’s enough for you to imagine that bug, and that’s sufficient stimulus for the prickle neurons to activate.
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