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What exactly does "time travel" mean in this context? That the simulation makes some moves, sees what happened, and then has the ability to undo its moves and go back to its old state, and then try new moves?

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Yes. It's basically a brute-force Groundhog Day approach to finding the best move.

Another movie analogy would be Next. Cris Johnson can see two minutes into the future and redo anything that has a bad outcome.

http://en.wikipedia.org/wiki/Next_(2007_film)

Yes, exactly.

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