2. I think you focused on the employee payoff matrix to argue that they'll always pick to defect. but I would argue that humans have "emotions" and sometimes even loyalty. like i said, I personally would have stayed the course and sacrificed some of my "payoff matrix" but never got the chance.
disclaimer: i may have again butchered the theory of prisoner's dilemma, but i think you get my point so hopefully we can avoid arguing the technicalities of prisoner's dilemma.
Lastly, I would argue that in startups, this is a game you do want to play over and over. if you're only hiring expendable, replaceable employees, then you're probably playing the wrong game, with the disclaimer that I definitely don't have all the answers and reserve the right to be wrong.
Consider the payoff matrix for the employee:
Employee finds a new job, old employer fails: +5
Employee finds a new job, old employer succeeds: +5
Employee stays, old employer fails: +0
Employee stays, old employer succeeds: +6 (+10?, +20?)
I wouldn't say finding a new job is equivalent to "defecting".
A better analogy is if the employer really put together an awesome team, and he hopes to work with them again in the future. In that case, honesty is better. But that's iterated game theory rather than a single game.
If you play Prisoner's Dilemma once with a complete stranger, you could argue that the Nash equilibrium is to defect. When you play with the same people over and over again, then defectors can be punished.
Unfortunately, the modern economy is more like a group of strangers playing with each other for one game. If you defect, you can always find someone else gullible to play with next time.