The hat game often confuses those who play it. That's because the answer to the question, "Who has the hat?" at the end of the speaker's story has nothing to do with anything he has said. Instead, the first person to make a sound after the speaker asks the question is the one who "has the hat". There is no actual hat involved. All you need is someone who knows how to play the hat game (yourself, the speaker) and at least one person that doesn't.
Ask each person whether he or she is familiar with the hat game. The game only succeeds when at least one person is unfamiliar with it.
Tell a story involving a hat. Say, for example, "I have a hat. I walk into a store and a parrot grabs it from my head. The parrot drops the hat on the street where a dog picks it up in his mouth."
Ask, "Who has the hat?" Listen to determine who is the first person to make a vocal noise. This includes an answer to the question as well as a cough, sneeze, sigh or hum.
Reject any answer that doesn't refer to the person who made the first vocal noise. Given the example story, a player would likely answer that the dog has the hat, but the person who made the first vocal noise is the one who "has the hat."
Repeat steps 2 through 4 until either the other players give up or they figure out how to answer the question correctly. Do not tell them the trick until you're ready to end the game.