Extrinsic and intrinsic rewards are at odds. When we find no intrinsic reward, we do boring things for extrinsic rewards. When we enjoy something, extrinsic rewards supplant intrinsic rewards when they’re added to the system—take the extrinsic reward away and the intrinsic goes with it.
This has been shown true by thousands of studies, according to Chris Hecker who talked about it in a GDC presentation (here is the summary I read). It backs up much of the writing I’ve done here on MMORPGs, especially in the themepark subgenre.
Some games don’t benefit from adding reward treadmills—these games have enjoyable gameplay to begin with. Adding substantial extrinsic rewards would only turn the enjoyable game into a grind. This has happened to me to a small degree with Global Agenda. The way GA is continuing, it will only get worse. I hate watching the addition unnecessary and excessive extrinsic rewards ruin a potentially great game. Unfortunately, it seems to be the current fad in game design.
(You might also want to check out this Overcoming Bias article on incentives.)