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Newcomb's paradox is a paradox because it leads logically to self contradiction. Reverse causation is defined into the problem and therefore logically there can be no free will. However, free will is also defined in the problem; otherwise Chooser is not really making a choice.
Newcomb's paradox was created by William Newcomb of the University of California's Lawrence Livermore Laboratory. It was spread to the philosophical community by Robert Nozick in 1969, and appeared in Martin Gardner's Scientific American column in 1974.
There are two players named Predictor and Chooser. Chooser is presented with two boxes: an open box containing $1000, and a closed box that contains either $1,000,000, or $0 (he doesn't know which). Chooser must decide whether he wants to be given the contents of both boxes, or just the contents of the closed box.
The complication is that the day prior, Predictor predicts how Chooser will choose. If he predicts that Chooser will take only the closed box, then he will put $1,000,000 in the closed box. If he predicts that Chooser will take both boxes, he will leave that box empty. Chooser knows this rule of Predictor's behavior, but he does not know Predictor's actual prediction.
The question is: should Chooser take just the closed box or take both boxes?
If Predictor is 100% accurate and if Chooser takes only the closed box, he will get $1,000,000. If Chooser takes both boxes, the closed box will be empty and Chooser only gets $1,000. By this reasoning, Chooser should only choose the closed box.
But at the time when Chooser walks up to the boxes the contents have already been set. The closed box is either empty or full. It's too late for the contents of the boxes to change. Chooser might as well take whatever's in both boxes. Whether the closed box is empty or full, he'll clearly make $1000 more by choosing both boxes than by choosing just one box. By this reasoning, Chooser should always choose both boxes.
In his 1969 article, Nozick noted that "To almost everyone, it is perfectly clear and obvious what should be done. The difficulty is that these people seem to divide almost evenly on the problem, with large numbers thinking that the opposing half is just being silly."
Philosophers have proposed many solutions to the paradox.
Some have suggested that a rational person will choose both boxes, and an irrational person will choose the closed one, therefore irrational people do better at this game.
Some have suggested that a rational person will choose both boxes, and an irrational person will choose the closed one, therefore rational people do better at this game (since an accurate Predictor cannot actually exist).
Others have suggested that in a world with perfect predictors (or time machines because a time machine could be the mechanism for making the prediction) causation can go backwards. If a person truly knows the future, and that knowledge affects his actions, then events in the future will be causing effects in the past. Chooser's choice will have already caused Predictor's action. Some have concluded that if time machines or perfect predictors can exist, then there can be no free will and Chooser will do whatever he's fated to do. Others conclude that the paradox shows that it is impossible to ever know the future.
Some philosophers argued that this paradox is equivalent to the grandfather paradox. In the grandfather paradox, a person travels back in time, which leads to a chain of events preventing that from happening.
An analysis from the perspective of quantum mechanics sidesteps the incompatibility of free will and reverse causation by putting the closed box in a state of superposition until the actual choice is made. The box is simultaneously empty and full.
A multi-worlds cosmologist will conclude that Predictor's action results in two parallel time streams - one in which he has filled the box and one in which he has left it empty. The multi-worlds theory generally leads to the conclusion that both free will and causation are illusory artifacts of the matching of consciousness to a particular memory of the time stream.