Of course they could have accepted the assholes and invested ample time and resources to nurture their emotional intelligence, but they would have resorted to that only if they couldn't find enough candidates.
Stress happens. Good management provides a buffer to mitigate it, but sometimes compounding events means it's gonna happen, despite the best planning.
Better to know up-front how people will behave during the worst times than to see the team completely collapse when they're needed the most.
I get that "the interview is stressful", but if you do enough of them, they're not that stressful.
And in my experience, stuff like this is really good at identifying some assholes. I can't find references, but it is based on research, and is applied in other scenarios. It is in fact often recommended you do a version of this prior to marrying someone: Usually some physical activity is picked that both of you suck at, and the goal is not to achieve it, but to see how well you work together in unfamiliar terrain. It's not a great sign if failure to succeed results in a nasty argument ("We could have solved this if you'd done it my way!")
As always, the cost of a toxic hire is much greater than missing out on a good engineer. If this has even a 50% success rate at detecting jerks, it's worth it.
I remember doing an experiment like this as part of my preparation to a new job level. In our case, a natural leader emerged, the previous leader yielded their power, and we solved the game in like 15 minutes with the new leader and suggestions from the others. I guess I was lucky with my group.
I don't think it's an "asshole" behavior to induce stress during an interview and observe results. What else are you supposed to do?
At least in this environment you know you are being observed. Different from a company finding some embarrasing social media post in a bad time of your life.
I would just assume that about any employer anyway.
These team exercise are not uncommon or unreasonable in grad hiring, but it's a terrible idea to not clarify them up front.