The rationality of qualified lotteries

Abstract

A lottery (or random selection) is often considered to be irrational. However, a qualified lottery can lead to a second-order rationality on an institutional level. The main idea is to make use of uncertainty, either by exploiting existing fundamental uncertainty or by deliberately enlarging uncertainty through lotteries. In both cases, decision quality may be enhanced by increasing diversity and risk diversification, by decreasing biases and noise, and through a strong disempowering effect by the shadow of uncertainty. The paper shows the different ways in which qualified lotteries have been used in history, analyses why this procedure has been forgotten despite its clear advantages, and compares it with competitive selection mechanisms.