Information Theory and Coding

Abstract

Chapter 5 uses the widely observed dichotomy between routine and non-routine behavior to explain how an entity with bounded rationality can achieve error-free behavior. Error-free communication and perfect control were shown to be duals. In terms of the simplified model of Chapter 5, any entity, no matter what its start state, can achieve perfect control if it is allowed to engage in enough deliberation. Deliberation, however, takes time and uses other scarce resources as well. What an entity deliberates about and how much deliberation it engages in will depend upon its start state as well as the stochastic properties of its environment. This chapter takes up the question, What is the best start state? The answer given here is an application of the coding theorems of information theory. Chapter 7 is addressed to the question, Is there an “invisible hand” at work that will lead (or force) an entity to adopt the best start state?