The Blues took the lead through Richard Dunne with 21 minutes remaining but Collins John drew the visitors level seven minutes from time.
The City players, Pearce insists, then chose to go for the 3 points and almost regained the lead when Georgios Samaras, a 66th-minute sub for Darius Vassell, had a shot cleared off the line after chipping the Fulham keeper.
But in the last minute of normal time, Fulham broke and Steed Malbranque, a City target last summer, netted the winner to give Fulham their 1st away win of the season.
"We allowed them too much space for the first and, with the second, we were trying to chase a winner," said Pearce.
"We would have won the game had that (Samaras' chance) gone in. When you get your nose in front late in the game like that we really should shut up shop by keeping the ball and working that little bit harder.
"We did not do that and Fulham have got enough ability to catch you on the break if you leave the door open.
"I would not necessarily say that I decided to go for the game," added the City boss.
"The players, in their wisdom, decided to, and at that stage of the game, fatigue sets in and players do strange things.
"That was evident today when we should have said, 'maybe 1-1 will do us'. You certainly do not let teams break on you in the numbers that they did."