I dont agree to the OA. This screenshot down below is from Manhattan Gmat
well the problem with grammar is that, unlike maths, it is not governed by some hard facts !! i am not contending the rule given in Manhattan book .that rule is fine !! but the problem is that "this rule"
does not present various other cases and exceptions .in fact, it is almost impossible to write a book that makes all rules very clear(BTW Manhattan SC is master piece)
so where is the real problem? ----->"this rule" (the one u have quoted) will hold true as long as u do not have another "noun" in the middle of the sentence
so in the sentence : their appreciation that as people dehydrate, their
------>"their" can very well refer to "people"
is it clear now?