I guess you can reach two conclusions from that:
1) A surprising number of applicants are totally misrepresenting their abilities – either through deceit or wild ignorance.
2) Something about your interview process makes a surprising number of people unable to perform at their normal level – from nervousness, unrealistic and artificial constraints, etc.
Certainly many of those applicants fall into the first bucket, but I'm betting a large portion fall into the second. So, you might reconsider whether the false negatives and highly unpleasant experience for many interviewees are worth the perceived value. Maybe there's a better way to get the same insights.