The investor has erroneously overvalued the value of the stock/commodity.
Here is a prominent paper that models irrational bubbles:
This paper attempts to formalise herd behaviour or mutual mimetic
contagion in speculative markets. The emergence of bubbles is
explained as a self-organising process of infection among traders
leading to equilibrium prices which deviate from fundamental values.
It is postulated furthermore that the speculators' readiness to follow
the crowd depends on one basic economic variable, namely actual
returns. Above average returns are reflected in a generally more
optimistic attitude that fosters the disposition to overtake others'
bullish beliefs and vice versa. This economic influence makes bubbles
transient phenomena and leads to repeated fluctuations around
Herd Behaviour, Bubbles and Crashes (Lux (1995))
The investor is aware that it's a bubble and is overvalued, but believes he can make a profit by selling before the bubble bursts.
Bubbles, rational expectations and financial markets (Blanchard and Watson (1982)) is a famous paper on this subject.
This paper investigates the nature and the presence of bubbles in
financial markets. Are bubbles consistent with rationality? If they
are, do they, like Ponzi games, require the presence of new players
forever? Do they imply impossible events in finite time, such as
negative prices? Do they need to go on forever to be rational? Can
they have real effects? These are some of the questions asked in the
first three sections. The general conclusion is that bubbles, in many
markets, are consistent with rationality, that phenomena such as
runaway asset prices and market crashes are consistent with rational
bubbles. In the last two sections, we consider whether the presence of
bubbles in a particular market can be detected statistically. The task
is much easier if there are data on both prices and returns. In this
case, as shown by Shiller and Singleton, the hypothesis of no bubble
implies restrictions on their joint distribution and can be tested. In
markets in which returns are difficult to observe, possibly because of
a nonpecuniary component, such as gold, the task is more difficult. We
consider the use of both "runs tests" and "tail tests" and conclude
that they give circumstantial evidence at best.
Here is another:
We present a model in which an asset bubble can persist despite the
presence of rational arbitrageurs. The resilience of the bubble stems
from the inability of arbitrageurs to temporarily coordinate their
selling strategies. This synchronization problem together with the
individual incentive to time the market results in the persistence of
bubbles over a substantial period. Since the derived trading
equilibrium is unique, our model rationalizes the existence of bubbles
in a strong sense. The model also provides a natural setting in which
news events, by enabling synchronization, can have a disproportionate
impact relative to their intrinsic informational content.
Abreu and Brunnermeier (2003)
[I]s investor behaviour during bubbles well studied, and are there models explaining it?
Yes, this is a huge literature with probably thousands of papers and hundreds of books written about it. Here is a technical book on the subject: Asset Pricing under Asymmetric Information: Bubbles, Crashes, Technical Analysis, and Herding,
These books are more historical than theoretical: Manias, Panics and Crashes: A History of Financial Crises, This Time Is Different: Eight Centuries of Financial Folly, Irrational Exuberance.