I'm not so sure I agree with this reasoning. I agree with asking questions about their business and strategy because such questions can lead to interesting conversations, but to outright refuse to do someone's project because you don't think it'll work is the epitome of arrogance.

Lots of people want BS projects and lots of people also only really learn through experience. That $10k project that is "obviously doomed to fail" might give them a fairly cheap education in business that will lead them to their next, more profitable project. Or, perhaps, they'll figure out they're not getting the results they want, ask why, and make the necessary changes to make it work with that $10k thing that's been built. Not everybody is irrational or unreasonable in the face of failure. (Also, that BS project might actually succeed too.)

Bear in mind that most businesses fail, and someone's first and second businesses are even more likely to fail. Trying to save someone from failing in this way is depriving them of the experience that they need to be successful later. It's akin to trying to stop a toddler from falling but also preventing them from learning to walk. Experience is a valuable teacher and we don't need to be out trying to save the world from failure. Failure is necessary.

One more example: if I go to my hair stylist and ask for it all to be shaved off, I'd hope that he'd tell me I wouldn't look good with a buzz cut. However, if I insisted, I'd also hope that he'd do it anyway.

Perhaps the only three good reasons that spring to mind for turning away a prospect are a lack of ability or willingness to pay, an inability to complete the project, and a severe personality conflict that's going to lead to lots of drama in the working relationship.