In fact, the question of emulators wouldn't have been on the Sony engineers minds at all.
Because in 1994 (when the ps1 launched) there were no viable console emulators.
There were a few early prototypes, but they didn't produce 'playable results'. The first viable emulator (for any console) was arguably NESticle, released in April 1997. Things then moved rapidly, we see the first viable 16bit emulators in 1998.
It's notable that the PS2 doesn't have any protection against ripping games either. The Sony engineers would have been aware of emulators by this point, but they might have assumed that emulation would be stuck in the 8/16bit era for the foreseeable future.
So it must have been a huge shock for the first viable 32bit era emulators to come out in 1999. Connectix Virtual Game station (Jan 1999), UltraHLE (Also Jan 1999) and Bleem! (March 1999)
Yes.. that's right. We went from the first viable NES emulator to viable PS1/N64 emulators in under 2 years.
I'm guessing the PS2 was a little too close to it's March 2000 release date at this point to slap on rip protection, but the Gamecube and Xbox were released 18 months later, and both had time to implement disc encryption schemes.
A few years later, months before the PS2/GC era, even at DC times (and good PC games) some PSX games were still emulated because they had tons of value, such as JRPGs. And, again, ripping PSX games to play them in emulators without risking to scratch the CD's was the same task as ripping them to play the games with a modchip.
Also, technologically JRPG's and survival horrors were nothing against Unreal engine based games so they paled against Deus Ex for instance, but man, Parasite Eve and Resident Evil looked good with just a bilinear filter and they ran in a potato.
On being a shock, not much, because somehow in my mind the PSX games were closer in architecture to a PC than a Game Boy ROM emulated on a PC, which looked like black magic, ignoring how the hell the nerd brainiacs dumped the cartridge content (I had no concept of EE burned ROM's in the day, or cartridge dumpers via the serial cable) to a PC. For the PSX, well, it was easier for obvious reasons, CD's were CD's, and again the 'look' of PC games and the PSX looked similar, so maybe they shared similar technologies on drawing/rendering.
Ditto with the N64, that was a bigger shock. How the hell did they dumped the content of the cartridge? Later I knew about Debian Woody, a bit of C, the concept of libraries (not just DLL's under Windows) and that the N64 and PC's with Linux with OpenGL shared some design and the rest was story. I learnt more about computers trying to write some emulator myself in Perl back in the day and with GNU/Linux than in any school...
Also I loved TV tuners for a similar reason. I could dump teletext, dump the EPG from cable TV's even with just plain TV tuners (the decoded signal went vanilla into the PCI bus, so NXTVEPG worked in the same exact way) and so on. And yes, I pirated TV channels for some brief time until everyone shared media in either DivX CD's and P2P networks.
But to understand Sony's development decisions, you really have to think in the mindset of an adult hardware engineer, in Japan, around 1992/1993.
And like I said, emulators did not exist. At all. The primary method of piracy was actually the game backup device [0]. We didn't really see them in the west, I'm not surprised you missed them, but they were rampant in Asia.
They were floppy drives that plugged into your carriage based console, SNES MegaDrive etc. They could dump any cartridge game to a floppy disk (or two in the case of the largest 2MB games). And then load the dump back into a pool of battery-backed RAM, which the console would see as a cartridge.
Owners of such devices could share the floppies, or copy the files off and share them across the internet.
These devices are why most cartridge game from the 8bit era, 16bit era and N64 (yes, there were N64 backup devices too) was already floating around the internet long before we had viable emulators.
And it's also what Sony Engineers would have been thinking about when they were designing their copy protection system. They didn't really see the need to prevent ripping (besides required cryptography hardware was expensive and actually considered to be controlled military technology, subject to strict export controls until 1996).
And Sony didn't see the need to prevent rips; All piracy devices at this point required the game to be played back on an actual offical console (ignoring Chinese NES clones), so all they needed to do was could close the circle by making the PS1 refuse to play any copied disc. No point ripping if they couldn't be played.
Of course, in retrospect this was a complete failure. Turns out mod chips for the PS1 were stupidly simple, cd burners rapidly dropped in price, and emulators quickly became viable.
