Approximation of the optimal two-part MDL code for given data, through successive monotonically length-decreasing two-part MDL codes, has the following properties: (i) computation of each step may take arbitrarily long; (ii) we may not know when we reach the optimum, or whether we will reach the optimum at all; (iii) the sequence of models generated may not monotonically improve the goodness of fit; but (iv) the model associated with the optimum has (almost) the best goodness of fit. To express the practically interesting goodness of fit of individual models for individual data sets we have to rely on Kolmogorov complexity.

The relationship between the Bayesian approach and the minimum description length approach is established. We sharpen and clarify the general modeling principles MDL and MML, abstracted as the ideal MDL principle and defined from Bayes's rule by means of Kolmogorov complexity. The basic condition under which the ideal principle should be applied is encapsulated as the Fundamental Inequality, which in broad terms states that the principle is valid when the data are random, relative to every contemplated hypothesis and also these hypotheses are random relative to the (universal) prior. Basically, the ideal principle states that the prior probability associated with the hypothesis should be given by the algorithmic universal probability, and the sum of the log universal probability of the model plus the log of the probability of the data given the model should be minimized. If we restrict the model class to the finite sets then application of the ideal principle turns into Kolmogorov's minimal sufficient statistic. In general we show that data compression is almost always the best strategy, both in hypothesis identification and prediction.