|“||Cause target to panic on its following turn, if the target's Will is overcome. Robotic enemies are immune. 2 turn cooldown.||”|
– In-Game Description, XCOM: Enemy Unknown
Contrary to the description, Psi Panic immediately causes the victim to panic, similar to XCOM soldier panicking, which may cause the targeted enemy to hunker down, run away, or fire on a randomly selected target (including the player's soldiers) during the player's turn, and then forces the victim to skip its next two turns.
Compared to Psi Inspiration, Psi Panic is a higher risk, higher reward power. Psi Inspiration does very little outside specific circumstances, whereas Psi Panic can be used more often and immediately impact the combat situation, ranging from highly desirable outcomes to outcomes that just break even for the player.
Psi Panic is a disable power that is somewhat unreliable due to the random outcomes. In particular, the "free shot" the target sometimes gets is obviously undesirable. However, there is only a chance of this happening, and the target would be able to shoot in its turn anyways, potentially from a flanking position, so this outcome is not a loss for the player (rather it is breaking even).
In marginal cases, Psi Panic could work better than Mind Control, such as when a panicked enemy shooting down another enemy that is highly dangerous (for example, threatening to kill one or more of the player's soldiers).
To avoid being fired upon by enemies after using Psi Panic, it can be used as a Psionic soldier's first attack from stealth (either by using Ghost Armor or Mimetic Skin) on a pack of un-triggered enemies; the soldier isn't technically spotted until after the triggering event, so the panicked enemy won't have a target.