The Matrix Movies and Sim City

Just think about this. It is fun to entertain in your mind:

1. It is possible that a civilization could create a computer simulation which contains individuals with artificial intelligence.
2. Such a civilization would likely run many—say billions—of these simulations (just for fun; for research, etc.)
3. A simulated individual inside the simulation wouldn’t necessarily know that it’s inside a simulation—it’s just going about its daily business in what it considers to be the "real world."

Then the ultimate question is—if one accepts that theses 1, 2, and 3 are at least possible— which of the following is more likely?

a. We are the one civilization which develops AI simulations and happens not to be in one itself? Or,
b. We are one of the many (billions) of simulations that has run? (Remember point iii.)

In greater detail, this argument attempts to prove the trichotomy, that:
either
1. intelligent races will never reach a level of technology where they can run simulations of reality so detailed they can be mistaken for reality (or this is impossible in principle); or
2. races who do reach such a level do not tend to run such simulations; or
3. we are almost certainly living in such a simulation.

(Nick Bostrom)