The simulation hypothesis essentially posits that all of existence is likely a computer simulation, often credited to Nick Bostrom in his 2003 paper "Are You Living in a Computer Simulation?". I think most people hear this and there's usually an immediate knee-jerk reaction that this sounds like complete hogwash, while some view it as simply catering to the solipsistic thoughts we occasionally have. That being said, I think we should set our immediate skepticism aside as it is a well structured philosophical thought experiment and worth the read.
Before I get into the argument itself, I think it's worth defining what he means by "posthuman" as there is a vast amount of sheer nonsense associated with the term. "Posthuman" here is used in the academic sense and defined as a stage of human civilization where the our species has acquired most of the technological capabilities that one can currently show to be consistent with physical laws of the universe and with material energy constraints. It is a stage where the computational power and technological capability to design and create simulations, specifically ancestor-simulations. These civilizations would have enough computing power to run many ancestor-simulations even while using only a tiny fraction of their resources for that purpose. With modern video games and virtual reality, I think it's easy for most of us to easily wrap our heads around the possibility that we may one day create simulations indistinguishable from reality.
The argument states that at least one of the following propositions are true:
Breaking down each of these propositions, the first proposition is probably the most depressing in regards to the long term prospect of our species. Despite the technological progress we've been making over the last few centuries, we will not continue this trend to the point of a posthuman species as defined above, and will eventually go extinct either from self-annihilation from something like nanotechnology, or a natural disaster such as an impact of a large asteroid. It doesn't necessarily mean that any large scale disaster will wipe out all of humanity, but rather the collapse of technological civilization will be permanent and primitive human societies may very well continue to live on Earth.
The second proposition argues that humanity will indeed reach a posthuman civilization, but for whatever reason is extremely unlikely to run a significant number of simulations of their evolutionary history. Why? Who is to say what the motives or lack thereof is of a posthuman civilization? This is all speculation, but it could be that all sufficiently advanced societies recognize the ethical implications of running ancestor-simulations due to the suffering that might be inflicted on the inhabitants of the simulation (though Bostrom addresses that creating a human race is not currently viewed as immoral, but might be considered to be so at some point in the future). It could also be that posthuman civilizations do not have any desire or perceive any value in creating such simulations and have better and more important things to do with their time, energy, and computational power.
The third proposition is that we are living in a computer simulation is by far most interesting one. Posthuman civilizations do in fact create vast amounts of ancestor-simulations, and there is an extremely small likelihood we are living in the fundamental level of reality. Put another way, if we take all the minds that can potentially exist, simulated or otherwise, there's a good probability that your mind is a simulated mind (Bostrom gets into the mathematics behind this in his paper).
It's also possible for simulated civilizations to become posthuman as well and they very well may run their own ancestor-simulations on powerful computers they build in their simulated universe, somewhat like running a virtual machine. Reality therefore may contain many levels.
His paper goes even deeper and addresses things such as the possibility the simulators abridge certain parts of the mental lives of simulated beings and giving them false memories. Another possibility is that some simulations include only a small group of human minds, or even a single individual mind. The rest of humanity in the simulation are zombies or "shadow-people" that are simulated to a level for the fully simulated people to not notice anything suspicious (possibly to alleviate computational demand), though we're diving into more solipsistic territory.
Weighing all three propositions as being equal, this would mean there's a 33.3% chance we're living in a computer simulation. So what? What then does one do with this information? Nothing really. There's no reason to not continue to live your life as you normally would, though Bostrom points out that we should very much wish to proposition 3 to be true rather than proposition 1 (and I'm inclined to agree). I personally take an agnostic stance to this as it's really impossible to know, hence why it's a thought experiment.
I recommend reading Bostrom's paper, but also reading up on the simulation hypothesis that includes some criticisms.
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