The Role of Status Quo Bias and Bayesian Learning in the Creation of New Legal Rights

Abstract

We consider the role of status quo bias and Bayesian learning on the creation of new legal rights utilizing a model of legal evolution in which judges have limited discretion to create new precedent based on personal values, but, in the long run, are constrained by efficiency criteria. Our model demonstrates that status quo bias may effectively transform an ex ante inefficient rule into an ex post efficient rule. Because these legal rights are internalized over time through a process of Bayesian learning, new precedent is vulnerable to reversal until the new right has been sufficiently recognized and accepted.

Keywords: Status quo bias, Bayesian Learning, Legal Evolution, Legal Rights

JEL Classification: K10, K41