The fact that people are willing to pay much more for a diamond, which is not needed for survival, than they are willing to pay for a cup of water, which is needed for survival, is an example of irrational behavior

This depends on how you define 'irrational behavior.' If you define it as just not making sense, then yes, the above behavior is irrational to a complete outsider. But, since water, I guess, is 'more common' than 'diamonds' and is worth less than diamonds, then this is not really irrational as they could sell the diamonds, later for survival (in trade of food/water).