Formal approaches explore the outcome of rational decision-making with regard to choices faced by prehistoric populations. By conceiving of economic behavior in terms of universal rationality, these approaches are analytically useful because they allow for the isolation of variables and for cross-cultural comparisons. Formal economic analyses are built on studies of modern markets by human geographers and involve reducing labor, land, and capital to the price as the unit of cost. Anthropologists using formal approaches may apply energy or time as value units to studies of food procurement, raw material provisioning, and settlement choice as in studies by behavioral ecologists (Winterhalder and Smith 2000) and archaeologists (Earle and Christenson 1980;Jochim 1976;Kennett and Winterhalder 2006).

Formal approaches to prehistoric exchange have been used by archaeologists to study the evolution in exchange systems both organizationally and from the perspective of individual behavior (Earle 1982: 2). On the larger scale, regression analysis (Hodder 1978;Renfrew 1977;Renfrew, et al. 1968;Sidrys 1977) and gravity models (Hodder 1974) use assumptions of cost minimization to differentiate between possible exchange systems in prehistory. "The sociopolitical institutions establish constraints in terms of the distribution and value of items. Then, individuals, acting within these institutional constraints, procure and distribute materials in a cost-conscious manner" (Earle 1982: 2). Neoclassical assumptions on the scale of individual behavior have also been used to examine the evolution of market based exchange (Alden 1982) and subsistence goods exchange by territorial groups exploiting high-yielding yet unpredictable resources (Bettinger 1982). A synthesis by Winterhalder (1997) investigates the way in which complex exchange behaviors that have been documented ethnographically can result from models of circumstance such as tolerated theft, trade and risk reduction, and models of mechanism such as kin selection and dual inheritance.

Critiques of formal approaches have been various, with strong methodological criticism coming from influential ex-formalists like Ian Hodder. On the subject of exchange, Hodder (1982: 202) observes that the explanatory power of formal approaches to prehistoric exchange are significantly weakened by the problem of equifinality in the empirical evidence, an issue discussed below. Hodder further argues that middle range links between social contexts, political strategies, and the empirical evidence provided by distributions of archaeological data are insufficiently accounted for with formal approaches such as regression analysis.