A philosophical question

I've played enough sit and go tournaments now that I've seen a fair number of unusual things. I've had a four of a kind at least three times in sit and gos, which I'm sure is well above the expected frequency given the number of hands I've played. I've been rescued by long shot river cards to split pots when I should have hit the felt, and have also been done in by long shot river cards when I was the clear favorite. Actually, those last two circumstances aren't really that unusual, especially in tournaments. Another variety of quasi-unusual tournament event has brought up a philosophical question. At least three times, I've observed hands where two players hit the felt at showdown; I was on the losing end of this scenario in the second tournament I played last night. The PokerStars software informed me that I'd finished the tournament in 5th place, and the other player who'd hit the felt had finished in 6th. The practical question of what criterion the software used to decide who got which place is what led to my philosophical question. I can think of at least 3 different criteria for deciding:

1. the losing player who had more money at the start of the final hand than the other losing player did gets the higher tournament placement

2. the losing player who had position on the other losing player gets the higher tournament placement

3. the losing player who would have won the hand if he'd been heads up against the other losing player gets the higher tournament placement

I don't think there's any clearly correct answer, which is what turns this into a philosophical question. Personally, I lean towards #3.

buy_in entry_fee num_players num_hands place winnings

 50000       800           6        56     3        0
 50000       800           6         6     5        0
 50000       800           6         8     6        0
 50000       800           6        80     2   105000
 50000       800           6        32     4        0
 50000       800           6        39     3        0

delta: $-199,800
tournament balance: $905,090
balance: $6,035,821