I'm not the only academic who hates to give out "bad" grades (these days, that's anything below a B). Most of us were good students, and we would have been upset receiving poor grades. We tend to project that on our students. It took me quite a while to realize that some students are simply grateful to have passed, and are not planning to put any more effort in than is necessary. It was not until recently, however, that I realized giving students bad grades can be a useful educational tool, as well as an honest reflection of the student's knowledge. Conversely, inflated grades can undermine the learning process.
For years, I had a problem in my Physical Anthropology class: the lab write-ups were "easy points", but the worst* students in the class believed they understood the class material because they did well on the lab, even when they struggled to understand the basic concepts.
The class has a huge number of graded elements, and it is a demanding class, both in content and time commitment. Since the labs were more important for the physical experience of handling the materials than they were for the write-up, I tended to give out full credit for attendance, even if the write-up wasn't strong. The labs combined for only 10% of the class grade, so these "easy points" weren't causing any problems for the overall grade distribution.
Unfortunately, these "easy points" were leading to problems with student self-assessment. Students would assure me that their (failing) exam grades didn't reflect their true mastery of the material. As proof of that mastery, they would cite their good lab grades. And, yet, when I talked to them about the exams, it was very clear they were struggling with even the most basic class concepts.
You may be aware of the Dunning-Kruger effect, which says that - among American college undergraduates, at least - students with very low competence tend to grossly over-estimate their own mastery of the material. They believe themselves to be average or even above average in their knowledge and skills, when they are in fact in the lowest quartile, based on objective tests. (Conversely, people with high levels of knowledge and competence tend to underestimate their relative worth *cough cough* impostor syndrome *cough cough*.)
I finally wised up, re-did the labs so they required more write-up, and started grading them more honestly (i.e harshly). I don't know if this helps student self-assess and study harder, but at least I'm not encouraging students to delude themselves.
*The "worst" students are not necessarily the ones getting bad grades, and I don't mean "worst" as a value judgement on their character. I'm referring here to student with obvious difficulties in learning the material and comprehending the concepts. Maybe this comes from poor preparation for college, lack of childhood educational opportunities, or a learning disability. These are students who are truly trying, yet failing, to do well in the class, and aren't certain why. In other words, I'm not talking about students who are clearly capable of doing well, but are short-changing their study time in order to work long hours, or be involved in sports/theater/music, or who have family responsibilities. That's a different type of barrier to student success.