Yes, they turn out to be wrong. Yet from what they know, their reasoning is very logically sound.
This begins with their refusal to revoke Saren's spectre status without any proof. Shepard and company act like the council are complete fools when they have no proof besides the testimony of a traumatized dock worker. Shepard never even saw Saren on Eden Prime. Anderson starts ranting about how Saren wants to exterminate the entire human race, again, without anything but the dock worker's testimony. Frankly, he sounds insane.
This continues with Shepard's certainty of the existence of the reapers without anything but confusing visions from the prothean beacon. Throughout the series, Shepard does acquire solid empirical evidence to be convinced of this wild theory, but the council doesn't. It's only natural they'd be very skeptical without real proof.
In ME3, Shepard goes about requesting aid from the council all wrong. For some reason, help for earth and help building the crucible seem to go together. Why should Shepard expect the council to divert resources from their own homeworlds to aid earth when the reapers are threatening them too? If Shepard had simply asked for aid with the crucible instead of selfishly wanting earth aid, the council's refusal to help would be more understandably stupid; considering they had no plan B. Aid for earth only goes with the crucible at the end when the Citadel conveniently is brought to earth by the reapers.
It feels the handling of Shepard with the council was written poorly throughout the series; especially at the start when Shepard is so adamant on Saren's guilt and the reapers' existence.
Lastly, is it implied the council believed the reapers were real but for some reason were not admitting so, even to Shepard? There was an indication of that in the Citadel DLC while going through the archives.





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