I think participation awards are fine up until a point, but I don't think they are damaging, they just become equated with a prize for losing. As several have pointed out participation awards can be a really good thing at a certain age. At some point as they mature they'll see the participation ribbon for what it is, and I don't think that's a bad thing either. Failure is an essential part of development, but the development curve is gentle. It's not as though we need to send our kids to the salt mines for not scoring on a shootout, nor should we chisel a bust in their image out of gold for coming in last.
For me the issue extends beyond sport. Sport has the luxury of having a fairly well defined winner and loser. School meanwhile seems to be a little more ambiguous with how teachers are told to treat children. Over the several years my wife has been a teacher she's been asked to do things like mark with a certain colour of pen so the criticism isn't taken as too harsh, or come up with 3 nice things to say about the individuals character on their report card. The kid who comes to class everyday and is a little pr*** to his classmates doesn't need you to take it easy on his poor little emotions and tell him how bloody awesome he is. My personal opinion is that one aspect of a teachers job is to prepare children for the real world, but instead many are kept from doing it.
Sorry, that got off the rails a little bit.
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