According to Dennett, the same system may be described using a `physical' (mechanical) explanatory stance, or using an `intentional' (belief- and goal-based) explanatory stance. Humans tend to find the physical stance more helpful for certain systems, such as planets orbiting a star, and the intentional stance for others, such as living animals. We define a formal counterpart of physical and intentional stances within computational theory: a description of a system as either a device, or an agent, with the key difference being that `devices' are directly described in terms of an input-output mapping, while `agents' are described in terms of the function they optimise. Bayes' rule can then be applied to calculate the subjective probability of a system being a device or an agent, based only on its behaviour. We illustrate this using the trajectories of an object in a toy grid-world domain.

Decision theory formally solves the problem of rational agents in uncertain worlds if the true environmental prior probability distribution is known. Solomonoff's theory of universal induction formally solves the problem of sequence prediction for unknown prior distribution. We combine both ideas and get a parameterless theory of universal Artificial Intelligence. We give strong arguments that the resulting AIXI model is the most intelligent unbiased agent possible. We outline for a number of problem classes, including sequence prediction, strategic games, function minimization, reinforcement and supervised learning, how the AIXI model can formally solve them. The major drawback of the AIXI model is that it is uncomputable. To overcome this problem, we construct a modified algorithm AIXI-tl, which is still effectively more intelligent than any other time t and space l bounded agent. The computation time of AIXI-tl is of the order tx2^l. Other discussed topics are formal definitions of intelligence order relations, the horizon problem and relations of the AIXI theory to other AI approaches.