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STEVE CHIOTAKIS: Last year's economy hit millions of people where it hurts the most -- retirement savings. All kinds of investments lost value, but some people's financial decisions may have contributed to the hit on their own nest egg. Many investors were so afraid of losing even more, they sold everything they had in stocks, even though prices were low. These sellers chose to ignore all the personal finance information out there that says not to sell when the market is bleeding. They did anyway. Sally Herships asks, "Why?"

SALLY HERSHIPS: Allison Lenthall lives in Maryland. She's in public relations. Before the recession she'd invested her 401K in aggressive growth stocks. She was only 35 so she figured she had plenty of time to let it grow.

ALLISON LENTHALL: So Dad had taught me to buy and hold. I can remember being in an economics class in high school where we were given funny money to put into the market, and see who could, you know, accrue the most, and it was always just buy and hold, buy and hold. I can hear it in my sleep.

But then Allison started learning everything she could about the market, reading business magazines, even watching Jim Kramer. Then, on Sept. 15, 2008 Lehman collapsed. A couple weeks later the market dropped by 777 points ... in one day. A month after that the market was down another 1,800 points. And Allison's portfolio had lost 50 percent -- $10,000. But even though she knew not to sell low she did.

HERSHIPS: Are these emotional actions or logical actions?

LENTHALL: Oh, these are clearly emotional actions. They almost occur like you don't have a choice, like they just become instinctual. You just do them.

Allison says if she could go back in time she'd do things differently. But she panicked. So why do people make decisions that are clearly not in their own best interests?

RICK KAHLER: When we panic, we literally lose our minds. We disconnect from the logical part of our brain. It is gone.

Rick Kahler is a certified financial planner in South Dakota. He writes books on the psychology of money.

KAHLER: You cannot be logical when you have been triggered, when you're flooded with emotion. And I think everybody can relate to this, in perhaps an argument you've had with a significant other and you say things, and you do things that you later regret.

When we lose it the limbic system --the part of our brain that handles emotion -- literally drowns out the cortex --the part of our brain that handles logic. But Kahler says there is a good side to this. Say you're crossing the street and a semi comes out of nowhere at 90 miles an hour. You don't want to just stand there, analyzing the situation.

KAHLER: This is why the limbic system shuts off the thinking part and says listen, just move!

We can react to a fall in the market in the same way we react to a speeding truck -- by panicking.

Jonah Berger is a professor of marketing at Wharton. And he says when these animal instincts kick in, we also start acting like sheep.

JONAH BERGER: If you look at herds that get scared. One thing gets scared, and it starts to move in a particular direction, and the rest of the herd goes and follows that thing.

Because they think the first sheep to run away has some piece of information that they don't. But the herd instinct is good in a lot of ways.

BERGER: It saves packs of antelopes from lions, and it saves people from situations that might not be good from them. But in other cases it leads them to zig when they should zag, because the first person who went ahead didn't know any better then the rest of the people.

So it's not always safe to follow the pack. Berger also says a lot of the information we share can be very selective. We tend to pass only along the most extreme, more interesting stories.

BERGER: There's that old news adage, right: if it bleeds it leads.

Because of that, it's the extreme stories that tend to get around more. And that, Berger says, can lead to outcomes that are unrealistic. Like the overinflated housing market.

BERGER: Part of the reason we had a bubble in the first place is because everyone was sharing stories about the friend they happened to know who, in a year, doubled the price of their home and made a huge profit and sold and got out.

So to make sure I'm not guilty of passing along extreme stories I wanted to find out how many people really did panic when the recession hit. I asked Brian Reid. He's chief economist at the Investment Company Institute.

BRIAN REID:: Most investors really sat tight during the stock market decline.

HERSHIPS:: So they did nothing?

REID:: They did nothing.

Reid says most Americans who own stock own it through mutual funds. And in the fall of 2008, during that very dramatic market drop, about 13 percent of investors closed at least one fund. Normally that number would be closer to 4 percent. But keep this in mind:

REID: We don't know where they took the money. Did they turn around after they sold one stock fund and invest in another stock fund?

He says we don't know. It's almost impossible to track.

Back in Maryland, Allison Lenthall is one of the sellers who hasn't reinvested yet.

HERSHIPS:: Do you regret your decision now to sell?

LENTHALL: Yes, I do regret my decision. I do. So now I am going to reinvest my money into smart choices, mutual funds, and I'm going to buy and hold.

HERSHIPS: You're going to follow the rule buy and hold this time.

LENTHALL: This time. I'm going to get a tattoo. It's going to say buy and hold.

Lenthall considers this a learning experience. If she'd held on to her funds instead of selling she'd have $6,500 to show for it. It's an expensive lesson, but at least it's one she'll always remember.

I'm Sally Herships for Marketplace Money.