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Based on my own experiences, I would say that it does both. I have seen myself (and people I've played against and coached) get better and worse under the pressure of competition.
The thing that usually goes bad in competition is that we have a hard time remembering to compete hard but yet not hate the opponent. In competition, it is so easy to start to hate your opponent because you want so badly to win. This can lead to all sorts of unethical and obnoxious conduct.
What competition does to bring out the best in people is to force them to be brave under pressure. When you are trying to perform and your performance affects whether you or your team will win or lose, you learn how to deal with pressure and the fear of failure.
I think it depends on the personality of each individual. I have seen it bring out the best in some individuals, but have had friends that I have seen the worst brought out in competition.
In general, competition brings out the best in my students--not always in every student, but for the majority of the time, it has a positive effect. For example, I use a team system in my classroom which encourages my students to compete for points by answering questions, following procedures, and participating in skills practice. For almost all of my students, the competitive aspect of the teams motivates them to participate more, speak up more, and influence their team members to quiet down more quickly.
Similarly, the competitive nature of class rank, GPAs, athletics, etc., motivates more students than discourages them. I know that some schools have moved toward not having valedictorians or numerical grades, but my students really like knowing where they're ranked in comparison to their peers.
The answer is both, of course. It certainly depends upon the person and the intensity and importance of the competition, but either can happen. At its best, competition is a driving force for improvement, achievement, and success. At its worst, competition promotes aggressiveness, hostility, and excuse-making. We use the phrase "healthy competition" to refer to the positive aspects of working both together with and against an opponent.
Competition is really different for everyone. Some people are naturally competitive while others feel very uncomfortable competing with others. The good thing about being competitive is that people usually try to push themselves to be the best at what they are doing. This is why being competitive is a good thing. On the other hand, being competitive can bring out the worst in people as well. I think it really depends on the role models that have taught people how to be competive and whether or not they were taught how to be a good loser as well.
It's not really an either or situation is it. Think about the great things that competition has brought the world new technologies, cures for disease, quality (or enjoyable) entertainment such as books and movies. However, look at the evil it has brought-nuclear war, genocide, the Holocaust. The strive to be better and achieve more can flourish in the right conditions or it can destroy in the wrong.
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