I actually think this is unlikely. I actually I hope it happens because I think the EU is a long term con. Basically the EU is holding free trade as a hostage. Free trade offers great benefits but the EU as an institution can continue to force a greater political union on the countries forming the union even if this political union is not to the benefit of these countries. We are seeing it right now with the Brexit negotiations. There are two clear paths that solve the Irish issue but neither of them are possible because it would destroy the EU as an institution.

Solution 1)

Split the tariff union and the political union. The UK joins the tariff union. I honestly think most leave voters would be happy with the compromise of losing control over tariffs if they retain control over everything else. However, this basically destroys the EU as a political union because the EU as political union only exists because of the benefits of free trade and if every country can defect and maintain free trade they will.

Solution 2)

The EU offers a free trade area between the EU and the UK. This has some negative consequences for the EU and the UK in that they are restricted in the way in which they can increase tariffs from before the agreement to post the agreement. Again I think most leave voters would be happy with this trade off. Also, this restriction should not be a big deal for the EU. However, from the point of view of the EU as institution this is very bad because the UK is basically enjoying the benefits of free trade without the political union. If the UK is able to do this then all the other countries who do not benefit from the political union will want to do it and the political union will collapse.

The EU is a big problem for the UK going forward because they can keep demanding a closer and closer political union and use the threat of the UK losing free trade to make this possible. At what point should the UK walk away from the EU? I think it is better to rip off the band-aid now.

And just to add. Most economists believe free trade is beneficial to all parties. So why are the UK and the EU not able to agree on a WTO free trade area deal which would solve the Irish issue and presumably benefit both the EU and the UK in a post-brexit world?

Surely, this is a win-win outcome unless you are trying to punish someone for taking a branch in the game tree you don't want them to.

The reason I think it is unlikely that the UK will leave the EU with a hard brexit is because it doesn't seem like the government has taken reasonable steps in order to maximise the benefit for this course of action. Surely, if you considered a hard brexit an option you would be actively negotiating bilateral and free trade agreements with other countries. I understand if you were resource strapped this might not be something you would pursue but the UK government is not resource strapped and it would seem to make sense to pursue these deals even if there was like a 10% chance of a hard brexit.

May and her government are probably massively incompetent but it is hard to believe that they are that incompetent. I suspect either May or her bureaucracy believe the Britain's interests are best served staying in the EU and they are trying to engineer the situation to maximise the chance of this happening.