> Assuming there's hundreds or thousands of self-driving cars suddenly driving in environment without any traffic lights.
Self-driving cars should (1) know how to handle stops, and (2) know that the rules for a failed traffic light (or one flashing red) are those for an all-way stop.
In a traffic jam situation, all-way stop is a "blocked intersection" if every vehicle obeyed it strictly (if there are cars coming from every direction, nobody has right of way and you can't apply the rule of yielding right).
Humans, luckily, never follow the rules to the letter, which made it reasonable to put them down like this: some will be more impatient/aggressive, others will establish eye contact and wave one another through, etc.
In a situation like this where you've got "drivers" who can't collaborate and learn on the spot, the rule does not make sense.