This is the most common and most important psychological effect. Battles are often won or lost because an army panics and flees, even though it may not have been beaten in combat. Troops who are nearby when their friends are destroyed or run away can easily lose their nerve and flee themselves, causing other troops to lose heart until the whole army routs in blind panic.
A unit must take a Panic test in the following cases (which are described in more detail later):
It suffers 25% or more casualties.
A friendly unit within 6" is destroyed.
A friendly unit within 6" breaks from combat.
Fleeing friends move through the unit.
Note that you only need to take one Panic test per unit in each phase (start of the turn, movement, magic, shooting and close combat phase), even if there are multiple reasons to take Panic tests. Panic tests are often taken immediately when they are caused, and it is therefore a good idea to mark in some manner units that have taken a Panic test, as they will not have to test again as the phase continues. If a unit fails a Panic test, it must flee in the direction specified below.
After this first flee move, the unit will then try and leave the battlefield as soon as possible, so it will continue to flee towards the closest table edge until it leaves the battlefield or it rallies.
A unit must take a Panic test at the end of any phase (except the close combat phase) if it has lost 25% or more of the models it started the phase with.
For example, a unit of 20 models is shot at by an enemy unit and suffers four casualties - not enough for a Panic test. In the same phase, another enemy unit fires against them causing three more casualties. Seven out of twenty is above 25%, so the unit must take a Panic test at the end of the phase.
If the test is failed, the unit will flee directly away from the unit that has caused the most casualties (roll a dice in case of equal number of casualties).
War machines do not have to test if they lose one or more of their crew, and neither do ridden monsters or chariots if they lose their rider, or vice versa.
This test must also be taken if the unit suffers 25% casualties from random factors, such as miscasts, misfires, magical effects, unusual terrain or other special rules. This is intended as a 'catch-all' to cover units that suffer high casualties. A good example is casualties inflicted by whirling Goblin Fanatics, which cause casualties as, they move. These Panic tests are taken immediately as the situation arises and not at the end of the phase, and may interrupt a unit's movement in the same way as a stand & shoot charge reaction
If you cannot tell in which direction such strange situations would cause the panicking unit to run (as in the case of the casualties being caused by a member of the same unit exploding!), the survivors will flee towards the closest table edge.
This test must also be taken (immediately!) by a charging unit if its enemies stand & shoot and inflict 25% or more casualties. This may result in the charging unit panicking before it contacts its target (in which case it has been forced to flee from the hail of missiles unleashed by the defenders).
Unit Destroyed Within 6"
If a unit is completely destroyed (reached by a charger as it was fleeing, wiped out by missile fire, magic, close combat, or indeed any other occurrence), any friendly units within 6" of the destroyed unit must take a Panic test (you must measure this distance before removing the unit, of course). Units that had a unit strength of less than 5 at the beginning of the phase during which they were destroyed do not cause Panic.
If the test is failed, the unit will flee directly away from the point where the friendly unit has been destroyed.
Friends Break from Close Combat Within 6"
Test if a friendly unit with a unit strength of 5 or more within 6" has broken as a result of being defeated in close combat.
If the test is failed, the unit will flee directly away from the point where the friendly unit has broken.
Fleeing Friendly Models Move Through the Unit
If a friendly unit with a unit strength of 5 or more moves through the unit as part of their flee move, the unit must take a Panic test.
If the test is failed, the unit will flee in the same direction as their fleeing friends, joining them in the mad rush to safety.
Exception: A unit that has declared a hold charge reaction and is panicked by fleeing friends running through its ranks before the enemy is moved into contact automatically changes its reaction.to flee. This means they will flee away from the chargers instead of joining the friends that caused the Panic.