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A simple higher-order rational email-game bubble model

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  • Liu, Feng

Abstract

We propose a simple higher-order rational greater-fool bubble model, where the initial-period information structure is underpinned by an “information leakage” story, reminiscent of Rubinstein (1989) email game. Our nth-order bubble model requires only n+2 states, making it simpler than the model in Conlon (2004), which required n2+5n+5 states. Furthermore, we show that a limited disclosure policy, which sometimes reveals overpricing when it occurs, but remains silent when there is no overpricing, can amplify bubbles when no announcements are made. We also show that increased information leakage typically causes bubbles to collapse more rapidly but grow more quickly before the collapse.

Suggested Citation

  • Liu, Feng, 2026. "A simple higher-order rational email-game bubble model," Journal of Economic Dynamics and Control, Elsevier, vol. 185(C).
    • Handle: RePEc:eee:dyncon:v:185:y:2026:i:c:s0165188926000308
    DOI: 10.1016/j.jedc.2026.105284
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    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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