A dynamic context model of interactive behavior was developed to explain results from two experiments that tested the effects of interaction costs on encoding strategies, cognitive representations, and response selection processes in a decision-making and a judgment task. The model assumes that the dynamic context defined by the mixes of internal and external representations and processes are sensitive to the interaction cost imposed by the task environment. The model predicts that changes in the dynamic context may lead to systematic biases in cognitive representations and processes that eventually influence decision-making and judgment outcomes. Consistent with the predictions by the model, results from the experiments showed that as interaction costs increased, encoding strategies and cognitive representations shifted from perception-based to memory-based. Memory-based comparisons of the stimuli enhanced the similarity and dominance effects, and led to stronger systematic biases in response outcomes in a choice task. However, in a judgment task, memory-based representations enhanced only the dominance effects. Results suggested that systematic response biases in the dominance context were caused by biases in the cognitive representations of the stimuli, but response biases in the similarity context were caused by biases in the comparison process induced by the choice task. Results suggest that changes in interaction costs not only change whether information was assessed from the external world or from memory but also introduce systematic biases in the cognitive representation of the information, which act as biased inputs to the subsequent decision-making and judgment processes. Results are consistent with the idea of interactive cognition, which proposes that representations and processes are contingent on the dynamic context defined by the information flow between the external task environment and internal cognition.