"The "simulation hypothesis" suggests that we all, here in the "real" world, actually live in a computer simulation. How could this even possibly be true? How could physical beings, such as us, be in a computer simulation?"
It is widely acknowledged that mental activity is a result of brain activity; neuroscience has confirmed this far beyond a reasonable doubt. It is suspected by many that the reason mental activity arises from our brain activity is because of the way our neurons are wired and fire. Consequently, it would seem, anything that replicated the function of our neurons- that is wired and fires like our brains- would have a mind just like ours. but we have also discovered that the functions of our neurons can, potentially, be replicated by computer chips. We have already replicated neural firing on a small level- creating artificial retinas, and layers of chips that replicate the activity of our vision centers. Computer chips it seems, can be wired together, and fire, just like our neurons. This has led some (although this is a bit simplistic) to think of minds as programs being run on the hardware of our brains. If we go through with that analogy, we might infer that the program of our minds could potentially be run on something else, like a computer hard drive. And if it was, the same "mind"- the same consciousness- would be realized by that hard drive. Perhaps, if I live long enough, I could copy my mind onto a computer hard drive before my physical body dies, and I could live forever.
More importantly, this has also given rise to the eventual possibility of simulated worlds. Once computing technology has advanced enough, instead of copying an existing person's mind, and writing it onto a hard drive, one could create a new unique program/mind and copy that onto a hard drive. One could then feed inputs to that program- the same kind of inputs our brains receive from the outside world via our senses. The results? That mind- that simulated person- would experience the same kind of things we do. He would see objects, feel emotions, hear sounds- in exactly the same way we do. He would thus think that the virtual objects which he sees are physical objects. And you could populate that world with many other beings for that being to interact with, and feed those beings sensations too, thus creating a whole civilization of simulated people living in a simulated environment- that is a simulated world.
There are many reasons for wanting to do this. Simulated worlds could be of great use to historians. One could see how World War II would've turned out had Hitler known about the D-Day invasion. They would be of use to politicians and political scientists. You could examine the consequences of legislation before it passed. And perhaps most importantly- it would make a really kick-ass Sims game.
The simulation hypothesis suggest that the world we inhabit is a simulated world and that we are simulated persons. And Nick Bostrom has argued this hypothesis is much more likely than you might think. His argument goes like this: If we do create a simulated world, we won't stop there. We won't just create one. We didn't stop with just one iPhone; we wouldn't stop with one simulated world. Once Pandora's box is open, you can't close it. If there is one, there will be thousands. And beings in simulated worlds could even advance enough to create their own simulated worlds within their world. So a physical universe with a single simulated world isn't a very likely scenario. Thus, when we consider the possible physical universes that could exist, we realize the following: either there is one real physical universe and in that universe no simulated world is ever created, or in the one physical universe that exists, thousands upon millions upon billions of simulated worlds are created.
However if we one day create a simulated world, then we know that the first kind of universe- the kind of universe with no simulated worlds- is not the kind of universe that exists. The physical universe that exists is one in which billions of simulated worlds are created. The question then becomes, in which do we exist- the one physical universe, or one of the billions of simulated worlds it contains? Well, there is no way to tell from inside a simulated world that one lives inside a simulated world. Recall, to its inhabitants, a simulated world looks physical. And since simulated worlds can be created in simulated worlds, the fact that we created a simulated world would not mean ours is not simulated. All we have to go on is the odds. How many physical universes could we inhabit? Only one. How many simulated worlds could we inhabit? Billions! So given what we know, what are the odds that we don't live in a simulated world? Billions to one! Infinitesimally small. Creating a simulated world would give us very good reason to believe that we live in a simulated world- indeed, it would be a near guarantee.
So the epistemic probability of the simulation hypothesis is directly tied to how likely it is that we will, one day, create a simulated world ourselves. So how likely is it that we will, one day, create a simulated world?
Nick Bostrom argues that, given what we know, it's about 20% likely. There are a number of reasons that we might not create such a world. There may be insurmountable technological boundaries; we might find the ethical objections too convincing; perhaps we will simply lose interest in them; perhaps we will blow ourselves up first. How likely is any one of these scenarios? We really don't have enough information to tell; humans aren't good at predicting the future. So, given what we know, we should assign each an equal probability. And since, along with the "we will create a simulated world" hypothesis, there are five possibilities, each one of them gets 20%. So, the likelihood that we will one day create a computer simulated world, given what we know is 20%. Thus, given what we know, it is 20% likely that we live in a computer simulation."
-from The Simulation Hypothesis and the Problem of Natural Evil by David Kyle Johnson
Simulation Argument FAQ