Peter Sandman says it is officials, not citizens, who needlessly panic:

[There are] people who do think avian flu is serious but don't think the public should take it seriously. That's a position held by a number of people in the government and a number of people in a number of governments who argue that, yes, we the government are going to prepare, but for God's sake don't tell the public, because . . . they might get excessively frightened, and that might be bad for their psychology and bad for the economy. God forbid people should be afraid just because they're going to be dead. As the economists earlier on pointed out, it doesn't hurt the economy all that much for a lot of people to die, but if a lot of people get frightened, that's bad for business! So, there's a sense that we dare not frighten people. The other base in this argument says, "It's serious but let's not say so," [because] there's nothing for people to do anyhow. … What I want to do with the rest of my time is rebut those two arguments.

If you ask yourself which was a bigger problem in New Orleans, people so frightened they couldn't think straight, or people insufficiently frightened who didn't get out of town, I think you can make a very strong argument that the latter was a bigger problem than the former. … In the stairwells of the World Trade Center, people were more courteous than New Yorkers usually are, and more organized than New Yorkers usually are, and there were very few signs of panic among those who evacuated the Twin Towers. . . . When you interview the survivors, the vast majority tell you they panicked, but they didn't. They're wrong. They felt like panicking, and they did just fine.

Panic, in short, is rare. But official "panic panic" is common. That is, officials often imagine that the public is panicking or about to panic. And in order to allay panic, officials sometimes do exactly the wrong thing from a crisis communication perspective: They withhold information, they over-reassure, they express contempt for public fears, etc.

Panic is quite rare. What's quite common is denial; denial is why panic is rare. … If people are insufficiently afraid, they don't take precautions. If people are excessively afraid, they don't take precautions. They don't panic either. They go into denial and sit around saying, "It'll happen to somebody else."

So why do officials needlessly fear public panic?  I suspect what officials really fear is that citizens will blame them for whatever bad thing is happening; the panic thing is just an excuse to avoid looking bad.  Hat tip to Tyler and Toby Ord.