Most people with a rational way of thinking apply these abilities to other people, especially who hold high power and influence others. However, it is probably wrong, especially when applied to dictators. Despite their power and influence, dictators are not necessarily the smartest or the most educated people. And the lack of free exchange of information and other freedoms, personality problems and isolation make things worse and cause irrational behavior, which we, rational people, find difficult to understand and accept.
Your analysis seems to be very true. Pretending to have WMD may seem stupid to normal people, but admitting the opposite would be even more stupid and humiliating in the mind of an absolute dictator.