They are victims of a mental condition. There hasn't been much research done on the subject, so much of what I'll say next will be basically an unfounded rant based on pure conjecture. A fun one, so I'll go ahead with it.
This is what happens when the powerful pattern recognition faculties of the human brain are not limited by boundaries of reality. For our distant ancestors, very conservative defense mechanisms through broad pattern recognition proved effective, which is why this condition has continued to evolve. E.g. perhaps an Australopithecus individual would hide and run at the smallest sign of trouble. Maybe 9 times out of 10, it would be a false alarm, but it didn't matter, they would still survive. Over time, homo sapiens evolved to develop a more discerning and logical thought process, which would allow them to ignore many of the false alarms and use the time regained to build instead of hiding. While most modern humans possess the ability for basic common sense, in very rare cases they miss it due to a rare case of recessive genes, maybe?
Of course, our species is bang in the middle of evolving. There's very clear evidence that over the centuries through both genetics and more importantly memetics, the average human is developing a stronger sense of reality and reason/logic/rationality. In evolutionary scale, the progress in the last five hundred years has been absolutely exponential.
Anyway, back to your friend. It's not his fault - he isn't being deliberately obtuse. I believe more research needs to be done on this matter, and maybe effective psychotherapy solutions are developed. Once their brains have been rewired to accept boundaries to their imagination, it'll only be a matter of time before cold hard logic is accepted.
mic drop
wow
I will cross the other side of the street if I see you.