--- Mason Gaffney wrote:
>... I have learned a lot from observing
> human behavior driven by fads and fashions and herd
> and religious movements that strike me, at least, as
> "illogical".


In Human Action, (Chapter 1. Acting Man.
4. Rationality and Irrationality; Subjectivism and
Objectivity of Praxeological Research)
Mises states:

Human action is necessarily always rational. The term
"rational action" is therefore pleonastic and must be
rejected as such. When applied to the ultimate ends of
action, the terms rational and irrational are
inappropriate and meaningless. The ultimate end of
action is always the satisfaction of some desires of
the acting man. Since nobody is in a position to
substitute his own value judgments for those of the
acting individual, it is vain to pass judgment on
other people's aims and volitions.[end quote]

Any goal or end, such as joining in herd behavior or
indulging in fashion, is subjective and non-rational.
For Mises and Austrian-school theory, rationality
concerns the means towards ends, not the ends.  
However silly or dangerous or foolish some end may
appear to us, for economics, such goals cannot be
judged as "irrational," as they are merely the
subjective preferences and tastes of some persons. 

Perhaps the field of psychology may have a different
meaning of irrationality, but in economic theory,
goals and ends are merely data.  We might analyze why
people have particular goals, but it is meaningless to
ascribe  irrationality to subjective preferences.

As Mises wrote (continuing from above), "No man is
qualified to declare what would make another man
happier or less discontented."

> Tom Schelling, the great game theorist, has
> stated that he sees no solution for post-Katrina New
> Orleans because of the problem of coordinating
expectations, which (he says) markets cannot do.
> Logic, or at least his logic, fails him,

Such a conclusion fails to use lateral reasoning, to
see if there are missing premises in the logic.  
He evidently envisions the market as consisting in
atomistic individuals, whereas in reality, human
beings are always in community, and the institutions
of a community, such as financing civic goods from
site rentals, can push individuals to coordinated
action, as you have pointed out.  This is so both in a
market or a governmental setting.

>  we need to temper logic with observation,

That is what reason does.
Reason consists of applying logic to facts and facts
to  logic.

Fred Foldvary