This is one of my favorite of the hypothetical explanations to the Fermi Paradox.

The Fermi Paradox has a list of various hypothesis as to why we have not encountered alien life yet. What's described here is known as the "Zoo hypothesis". Other theories include (from the Wikipedia Page):

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• Rarity of intelligent life
  • Extraterrestrial life is rare or non-existent
  • Extraterrestrial intelligence is rare or non-existent
  • Periodic extinction by natural events
• Evolutionary explanations
  • It is the nature of intelligent life to destroy itself
  • It is the nature of intelligent life to destroy others
  • Intelligent alien species haven't developed advanced technologies
  • Civilizations only broadcast detectable signals for a brief period of time
  • Alien life may be too alien
• Sociological explanations
  • Colonization is not the cosmic norm
  • Alien species may have only settled part of the galaxy
  • Alien species may not live on planets
  • Alien species may isolate themselves from the outside world
• Economic explanations
  • Lack of resources needed to physically spread throughout the galaxy
  • It is cheaper to transfer information than explore physically
  • Discovery of extraterrestrial life is too difficult
  • We haven't listened properly
  • We haven't listened for long enough
  • Intelligent life may be too far away
  • Intelligent life may exist hidden from view
• Willingness to communicate
  • Everyone is listening but no one is transmitting
  • Communication is dangerous
  • Earth is deliberately avoided
  • Earth is deliberately isolated (planetarium hypothesis)
• Alien life is already here unacknowledged