Benfica's last-ditch winner against Anderlecht, combined with Edinson Cavani's winner at the Parc des Princes, cost the Spanish coach's side qualification for the knockout stages.
Qualification from Group C looked assured as the Greeks entered stoppage-time at the Parc des Princes level at one goal apiece with 10-man PSG, with Kostas Manolas having cancelled out Zlatan Ibrahimovic's opener.
However, Edinson Cavani scored a late winner for the home side and, to add to Olympiakos' woes, third-placed Benfica drew level on points with it thanks to Rodrigo's last-gasp winner at Anderlecht.
"It's like that in football: there is no justice or morality," Michel told reporters after the game. "We must face reality. "We did not get a sufficient result to qualify tonight and we now must do so against Anderlecht [on matchday six]. We accept the result, but if you look at the first five games, I think we deserve to qualify.
"I think when we equalized, PSG really expected it to finish [at 1-1]. They have great players, it is undeniable, but I think even they do not know how they were able to score the second goal.
"We gave too much respect to PSG. We should have been more daring."
Olympiakos has a better head-to-head record against Benfica so, in order to progress, it only has to equal the Portuguese side's result against PSG in a fortnight's time when it faces Anderlecht.