They don't believe it
I read an interesting idea today. People thought that a flood of participation trophies and unfailable schoolwork would lead to millennials becoming egomaniacs, convinced that their every dumbest thought was divinely inspired and that they were destined to succeed.
But it turns out that kids know good work when they see it. It’s also easy for them to see that everyone is rewarded equally, even though not everyone performed equally. So they realize the truth that is actually being communicated: that praise, awards, and positive feedback of any kind is not to be trusted because it’s almost never earned and therefore not genuine. It’s just the sort of thing people say when they talk about something you’ve done. It doesn’t mean anything. It isn’t important, or worth trying for. It has no value at all.
It won’t create overconfidence. It will create a generation who’s never sure of themselves. A generation immune to positive feedback.
Repairing this at a cultural level is impossible. But you can deal with it case-by-case in your individual relationships with people by offering thoughtful, realistic, constructive, negative feedback.
People will not trust when you say what they’ve done well, unless you’ve been straight with them about what they do badly.