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The correct answer choice is (E).
To prephrase the answer to this question, return to the second paragraph and look for context around the use of the word "authenticity." You will need to look both earlier and later in the paragraph to find how the author intended it to be understood.
Prior to the line that includes that word the author wrote about how the picaro "spontaneously yields to his own roguish, though innocent, impulses" and "indulges in vices and follies with relish and freedom," and compares the picaro to the other members of society who behave in similar ways only in secret. The author says that such free and open behavior "serves as a foil to the perceived hypocrisy of conventional society." Thus, when the author says the picaro behaves authentically, he means that the behavior is open and unfettered, devoid of the hypocrisy typical of how members of society normally behave.
Answer choice (A): This is almost an opposite answer, as the picaro is not conforming to anything, but is breaking free of conformity. This is another meaning for "authenticity," but is not the meaning used in this context.
Answer choice (B): This might be a valid definition for "authentic," synonymous with "valid," but that is also not the meaning intended here.
Answer choice (C): Another opposite answer, the picaro is very definitely NOT behaving as others do, but is behaving in a way that others find abnormal and even dangerous.
Answer choice (D): The picaro's behavior does not inspire trust; society marginalizes him in response to his authentic behavior.
Answer choice (E): This is the correct answer. The picaro's authentic behavior is spontaneous, roguish, and impulsive, and this answer matches that prephrase very nicely.