Re: extrinsic motivation. SDT (Self-Determination Theory) actually has quite a lot of studies on this matter. See Deci, Koestner and Ryan (1999) as an example [1] If you're designing reward/incentive system and want to maximize intrinsic motivation, what to choose – reward for showing up, reward for doing a task, reward for doing great or reward for winning?
Here is a quick breakdown of these contingencies:
1. Task-noncontingent – Reward is given simply for being present and does not specifically require actually being engaged with the target activity.
2. Engagement-contingent – Reward is given for spending time being engaged with the target activity.
3. Completion-contingent – Reward is given for completing a target activity (sometimes within a time limit).
4. Task-contingent – Refers to a larger category containing both engagement-contingent and completion-contingent rewards.
5. Performance-contingent – Reward is given for reaching a specific performance standard, for example, doing better than 80% of other people who have done it.
6. Competitively contingent – Reward is given to the winner of a competition and the loser gets lesser or no rewards.
Simplifying a bit, the results are – the further you go from 1 to 6, the stronger the detrimental effect on intrinsic motivation. In 6, for example, intrinsic motivation can be sustained only for the winners (because it carries a strong positive competence signal) but undermines it for everyone else.
Note that it's not always bad. In a private company, you may want to get rid of "underperformers", so rewarding excellence works fine.
Anecdotally I'm sure you can also rebuke such, as can I. In sports and games I did do well in, I obviously did not start out amazingly, nor did I receive any accolades or such for merely existing. Yet I went on to thrive in a number of sports/games, in no small part because I wanted to reach the top.
And the same is true of endless household names. E.g. Michael Jordan is quite famous for having been a bench warmer until he hit a growth (and competence) spurt, which started to transform him into the beast he would become. It's not like he just quit when he was relatively weak.
The incidents of competitors which started and stayed at the top, through ever more stringent competition, are very much the exception, and not the rule. Yet if your above hypothesis was correct - they're pretty much all we'd see!
I think the real problem with "participation trophies" is that it has very low competence signal. Not negative. But very low for everybody, regardless of performance. The winner's prize, at the same time, gives an extremely positive competence signal to the winner (at the expense of the negative signal to everybody else).
Again, if you put yourself into the shoes of a designer of an incentive structure, then you are facing a trade-off here. Do you want more people to keep doing this activity, or do you want to single out top performers? In sports, I believe it's more of a cultural element. Scandinavian countries, for example, are notorious for their culture of not expressing their personal success (Janteloven). That fits well with the Nordic sports model. More individualistic countries or post-soviet countries with "win at all costs" sports ideology tend to favor incentive structures optimized for early top performers.
Ultimately I strongly disagree that participation trophies incentivize participation, as well as that merit trophies discourage it. It is plainly illogical. I'm certain I could dig through the study and find a way that their methodology could easily lead to false conclusions, but I'm not terribly interesting in doing so, and in any case such a thing would be highly unlikely to be persuasive anyhow - because we aren't arguing that study, but our own personal biases. And, like with just about everything, there's extensive evidence for whatever side you want to argue.
Same goes for other key needs in SDT – autonomy being most important. Here is a study of swimmers and their drop-out after 10 and 22 months after assessing their coaching styles (autonomous vs controlled). [1]
Competition prizes are also form of extrinsic motivation ("external regulation" to be specific). Extrinsic motivation can be (and often is) very powerful. It just don't last.
[1] https://www.researchgate.net/publication/225153306_Associati...
Back to speaking like humans, the thing you are not responding to is expectations vs reality. Participation trophies are near ubiquitous in places like the US, and there's an ongoing attack on merit across a wide array of domains - let alone efforts to recognize and reward it. Were this having the effects you claim, would you not expect to see absolutely skyrocketing sports participation? In reality it's down, in many areas sharply so.
Before replying to expectations vs reality, we need to establish and agree on facts. Are you saying that in US, across all states and all sports, competition prizes has been replaced by participation trophies and you see a negative trends in sports participation?
And no I'm (obviously?) not speaking of every single instance, as for a topic like this there will always be some exception or another. I am saying that as an aggregate - sports participation is down, and participation trophies are up.
And in general I am very much a fan of avoiding excessive extrinsic motivation. For instance I loathe, with a passion, participation trophies. Because I do agree that this results in people participating only for those trophies rather than for the sake of the sport. But where we may differ, perhaps, is that I do very much think that excellence should be rewarded and recognized. Not even just for the sake of those victors, but as a model for other people to strive for. And, in any case, if somebody is good enough at basically anything to be #1 in it, they're already going to be driven intrinsically, or have crazy parents... but that's another topic!