This is very much like the "real world" situation. OTOH, I think this leaves the interviewee even more vulnerable to the unfortunate situation where they correc

This is very much like the "real world" situation. OTOH, I think this leaves the interviewee even more vulnerable to the unfortunate situation where they correctly solve the problem but the interviewer is convinced that a different, wrong solution is correct. Live long enough and you'll have that happen to you. OTOH, seeing how the interviewer reacts to that situation will tell you a lot about whether you really want to work there.