The Simulation Argument or Simulation Hypothesis proposes that conscious beings could be immersed within an artificial Universe embedded within a higher order of reality. The roots of this argument stem from philosophical observations such as Plato's "Allegory of the Cave" and Descartes "Evil Demon Hypothesis". The important distinction between these and modern Simulation Arguments has been the addition of proposed methods to engineer a Simulated Reality through the use of computers and the assumption that the conscious beings themselves are simulated and not merely "brains in a vat".
The concept was popularized by Nick Bostrom's paper Are You Living in a Computer Simulation? in which he argues that at least one of the following propositions is true: (1) the human species is very likely to go extinct before reaching a “posthuman” stage; (2) any posthuman civilization is extremely unlikely to run a significant number of simulations of their evolutionary history (or variations thereof); (3) we are almost certainly living in a computer simulation. It follows that the belief that there is a significant chance that we will one day become posthumans who run ancestor simulations is false, unless we are currently living in a simulation.
Bostrom, Nick (2001) *Are You Living in a Computer Simulation
Bostrom, Nick (2011) *A Patch for the Simulation Argument