Inception and The Matrix are films that tell compelling stories about people living within simulated worlds. In the case of Inception, the simulations are created in the dreams of corporate spies known as ‘Extractors’; in The Matrix, the simulated world is an illusion created by machines as a means of enslaving humanity. Both films explore the issue of how someone could possibly know if they were in a simulation, and the feeling we get is that perhaps we wouldn't.
Whilst people might be prepared to acknowledge the power of such an illusion for the characters in a film, presumably rather fewer would accept that there is a genuine chance they are in a simulation right now. One barrier to taking this notion seriously, is the fact that there is currently no technology capable of performing such simulations. But that is not to say that this technology will always be beyond us. It is reasonable to suppose that if humans survive into the far future, our technology would be more than adequate. Whilst we are not at that stage yet, it is an open question as to how many civilisations in the universe are at such an advanced stage of technology. And there’s the rub: the evolution of life to the point where intelligent organisms are capable of creating civilisations is probably exceedingly rare, but amongst the complex civilisations that do exist, the simulation of intelligent agents is potentially much less rare. Furthermore, if we assume that a civilisation capable of simulating one universe is capable of simulating many universes, there would appear to be the very real possibility that there are more simulated conscious agents in existence than there are real ones; it might be more likely that we are simulated than real.
The notion of being a simulated entity is admittedly rather unappealing, but perhaps it’s not the worst case scenario. Might it not also be possible for sufficiently rich simulations to run simulations of their own? In other words, there is presumably a chance that, far from being real, we are merely second order simulations, simulated within a simulated world! Perhaps we are at the mercy of several higher-order coffee cups, any one of which could spill and destroy one of the machines that computes our reality.
When I first drafted this post, it was an amalgamation of ideas from lots of popular sources; however, a glance at the literature makes clear that the simulation argument owes everything to the work of the Philosopher Nick Bostrom, in particular his paper from 2003. For anyone interested in further exploration of the idea, listen to Bostrom explain the idea in this excellent interview. Bostrom also curates a useful set of links on the subject at his simulation argument website.
Bostrom, N. (2003). Are you living in a computer simulation. Philosophical Quarterly, 53(211), 243-255.