The problem was he tried dominating and attacking when he shouldn't have to begin with. Pep City have always struggled dominating possession against other top oppositions, every manager and clubs he's struggled against his counter towards them was to play direct. After his poor choices/selection in the CL in 2018 against Pool, Klopp has only beaten Pep 1 in 6 games (7 if you include Community Shield), Pep has won 3, while the 2 draws also saw City miss a PK in both, could've been 5 wins in 6/7 games, why is that? He started playing more direct against them not hogging possession with a highline to get exposed, the same with Ole United he lost 3 times last season cause his highline got exposed which allowed United indidvdual players to do there work this season he was much more pragmatic and direct against them, last season against RM they hovered around 50-52% possession and this season against PSG as well, probably remember what Poch did to him with Son and Moura this time he had an upgraded version with Neymar and Mbappe. This game screamed for similar approach, allow Chelsea to have the ball and try pressing them in the defensive half (exactly what Chelsea was doing to them), while not leaving your backline exposed.
Even if we go back a little the formation/selection didn't make any sense from an attacking oriented view either, his best goal scorer was played furtherest from the opposition goal (Gundo), Foden was played in midfield, even tho Pep has said plenty of time how he wasn't ready to play there as he lacked maturity and patient, yet put him there in a final without an enforcer/DM lol Sterling who's just been poor this season was put out to ruin the flow of the team that got them there, guarantee if he played Sterling VS Dortmund or PSG they'd probably not make it past them. When he bought a DM on Gundo made that amazing run and was ready for a tap in the far post if it wasn't for Azpi clearance. Even then he played a highline without a DM which had the defence all over the place.
I have to give Tuchel and Chelsea credit they were great and agressive with a lot of workrate, while I can't fault City players, but Pep literally gave this game to Chelsea and put his own players in an uncomfortable. This man has a self destruct button somewhere in the bald head of his, he'll start getting results against Chelsea/Tuchel next season when he starts going more direct against them. The answer was always there for him, but what should be his first selection ends up always being last one which ends up working.