1 - people see what they expect to see. 2 - it's impossible to tell visually tell the altitude of a lighted object at night without knowing the size of the object, and even then it's tough.
Many years ago, when electric model aircraft were pretty new, we used to legally fly them over a local park. Because it gets dark early here in the winter, we put lights on them, because it's pretty tough to fly them without knowing the attitude as well as position. We used regular red/green/white lights. People called 911 to report aircraft flying around near their houses. They thought they were full sized aircraft flying at whatever height. Really, they were 2' long electric aircraft flying 200' off the ground. If you can only see the lights, a 2' plane at 200 looks exactly like a 20' plane at 2000...or closer. It was fun, though, explained to local PD, and after that they'd sometimes just park down near the park to watch us fly around. I think at least one picked up the hobby. That was before people called them all "drones", and today it would probably be a less fun encounter.
I hope no one takes any crazy action on all the NYC sightseeing helicopters flying out of NJ...even if they do sometimes fly weird, and in opposite directions from where they say they're going on the radio.