I've been considering the use of badges in my upcoming MOOC and so this article resonated with me. Some of the key things to avoid: making the issuing of badges a manual process (imagine having to click on a button 3,000 times (let alone fill out 3,000 forms)); don't require students to 'apply' for badges (because the data suggest that they won't); make badges usable (locating them inside an LMS is not 'usable'); and make sure they actually measure something meaningful (which make it doubly hard to issue them automatically; I won't issue a badge for passing a multiple-choice test). Note: Forbes uses a spamwall, which will block access for many readers; I use UBlock Origin on Firefox to access this article without having to whitelist Forbes (you should not whitelist Forbes).
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