This reminds me of earthbound where you can get "poisoned" by a mushroom, messing up the controls at random so you can't get used to it.
I think it's a good idea for a spell effect, don't really see why it should be applied to dragons specifically.
If it's to simulate intimidation I think knocking your character off their feet would work better, but in Sovjet Skrym Dragon fears YOU!
Using it as a "confusion" spell in general would be nice, as long as the game refrains itself from being used too often.
It's also a spell effect that could work both ways, messing up variables of the path-finding AI, so your target hits a wall or runs off a bridge. Sounds like fun.