"you think that it is more likely people are irrational."
What are you, some kind of objectivist?

Would you say that advisors do not warn students about the 'awfulness of grad school'? If so, why do they not?

I'll be the first person to say "hey wait, let's look at the background suicide rate before we start pointing fingers", but the fact that I could guess he was part of a synthesis group (Dale Boger) scares me.

In winter 2008 I remember being at a recruitment event when I flat out told prospectives that it was a bad idea to go to grad school, but gave them the caveat that the economy was crashing and that it probably made no difference either way.

For the most part grad students gloss over the awfulness of grad school to prospectives for many, far more plausible reasons:

1) they're first or second year students so they haven't had the brunt of the crap hit them yet
2) they're socially awkward and so not doing what they're told and being a bold sumbitch isn't in their demeanor
3) they're part of the system and don't see the crap that is going on around them (seriously, participation in recruitment self-selects for people who are happy to propagandize the system)
4) they want the free food and are afraid that if they are rabble-rousers they will be disinvited (unlikely, but still more likely than your dumb explanation.

Without tenure, for example, this experiment would never have happened:

http://en.wikipedia.org/wiki/E._coli_long-term_evolution_experiment

That's because it's a Macro problem rather than a Micro problem. If I'm already in the shit, then I want as good a bunker buddy to join me in the foxhole as I can get. My incentive is not to discourage the guy, even if the rare person of exceptional ethics might defy the underlying incentives and blow the whistle.