Abstract: Abstract: In the developing process of the industrial cycle, two extreme status of production capacity fluctuation often appear. Especially for the transition to the market economy in China, the problem of production capacity excess has repeatedly occurred，and has brought a serious impact on the economic development and economic efficiency. However, in the traditional economic theory, the enterprise and the market are completely rational, and there will not be a seriously production capacity excess or lack of production capacity through the price mechanism and market clearing. The enterprises as the principal part of microcosmic make the investment decisions based on a limited rational behavior but not completely rational. The hyperbola discount model is utilized to introduce the theory of cognitive bias into the study of the problem. From the perspective of microcosmic, the economic entity enterprises are analyzed. The conclusion is drawn that the enterprises will invest with the impulse when the economics is prosperity, and procrastinate investment lingeringly when the economics is at a low ebb because of the cognitive bias β. Massive blind investment will bring the fluctuation of industrial production capacity. The policies, that lead enterprises to investment correctly on the basis of the adjusted coefficient β and c, eliminate the cognitive bias, and realize the economics steady development, are suggested.

Key words: cognitive bias, limited rational, production capacity excess, impulse investment, procrastination investment