This is not Prisoner’s Dilemma. The original has no reputation effects. http://en.wikipedia.org/wiki/Prisoner’s_dilemma

This was a game in a game theory class. As so the teacher is trying to teach things like strategy domination, ect. In this case I believe he was applauding Ashley because she understood that a bid of .01 was weekly dominated by all other bids; that all other bids yield as good or better results.

Was it a bad idea for her to show herself as a “selfish git”? I don’t know that depends on the social situation. My guess is that folks in a game theory class get that this is a game.

See Yale open course on game theory for background: http://oyc.yale.edu/economics/game-theory/

On a side note if you want to take reputation into consideration consider the iterated prisoner's dilemma. Computer science classes commonly do this early on as a fun way of getting kids to create data structures capable of remembering who ripped them off.

In the experiment you trade with you classmates $1. If you both are honest you get back $1.1. If one cheats and the other does not they get $2. If both cheat they get $1. If someone cheats you most program that they cheat that person from then onward.

When the students don’t know how many trades the program will be run for the honest traders do best.