A wave of recent research has pointed to the risks of overpraising a child. But for parents, drawing the line between too little praise and too much has become a high-pressure balancing act.

Cara Greene, a mother of three children ages 1 to 8, is wary of deliberately pumping up her kids' egos, for fear of instilling the sense of entitlement she sees in young adults "who have been told they're wonderful and they can do anything." But she also wants them to have healthy self-esteem.

"We wouldn't be doing our children any favors by overinflating their egos. At the same time, I want them to have the confidence to tackle any challenge that is placed before them," says Ms. Greene, of New York City.

Now, psychologists are creating a deeper and more nuanced understanding of self-esteem, which could make it easier for parents to walk that line. Some of the conclusions: It can actually be good for kids to have low self-esteem, at least temporarily. And praise can harm if it disregards the world outside the home. Children who have a realistic—not inflated—understanding of how they are seen by others tend to be more resilient.

In the past, many parents and educators believed that high self-esteem predicted happiness and success, and that it could be instilled in kids simply by doling out trophies and praise. But researchers have since found self-esteem doesn't predict these outcomes. High self-esteem is partly the result of good performance, rather than the cause. Inflating kids' self-esteem too much can backfire, making them feel worse later on when they hit setbacks.

Self-esteem serves as a gauge—a kind of inner psychological meter—of how much children feel valued and accepted by others, including family, friends and peers, based on research by Mark Leary, a professor of psychology and neuroscience at Duke University, and others. This sensitivity to others' views evolved because of humans' need for social acceptance, which in ancient times could be critical to survival, Dr. Leary says. As early as age 8, children's self-esteem tends to rise and fall in response to feedback about whether peers see them as likable or attractive, says a 2010 study in Child Development.

Refocusing on Effort Remie Geoffroi

Refocusing on Effort THE SITUATION: Your second-grader is getting discouraged about his reading skills and beginning to talk about being dumb.

Your second-grader is getting discouraged about his reading skills and beginning to talk about being dumb. DO: Say, 'You aren't measured by your grades. It's who you are that matters. I know this is tough, but you are a person who tries hard when you hit a rough spot. I know you have what it takes.' (Encourages the child to look within and trust himself.)

Say, 'You aren't measured by your grades. It's who you are that matters. I know this is tough, but you are a person who tries hard when you hit a rough spot. I know you have what it takes.' (Encourages the child to look within and trust himself.) DON'T: Say, 'Buckle down. If you can't read, you won't be able to do much of anything.' (Makes a child who is trying hard feel like he's worthless if he can't meet external criteria for success.)

"Children absolutely need to feel valued, accepted and loved, and this will lead to high self-esteem," Dr. Leary says. But it can also be good for kids to feel bad about themselves temporarily, if they behave in selfish, mean or hurtful ways that might damage their ability to sustain relationships or hold a job in the future, he says. The best path is a middle road, helping children develop a positive but realistic view of themselves in relation to others.

Ms. Greene's husband Jason, an actor and at-home dad, tries to teach their children what his grandfather taught him: "Nobody is better than you, but you're not better than anybody else." When his 8-year-old son Wyatt started goofing around at practice for his soccer team, which Mr. Greene coaches, he knew Wyatt was "having a moment of feeling superior," Mr. Greene says. He benched Wyatt immediately.

Later, he explained: "I know it's hard to go by the rules all the time, to stand in line and pay attention. But you're not better than the rules, and you're not more important than anyone else on the team." His son nodded, and "we had a hug," Mr. Greene says. Wyatt hasn't misbehaved at practice since.

The Greenes also step in with carefully targeted encouragement when their kids hit a rough patch. When Wyatt fell behind in reading at school last year, Mr. Greene says, "his self-esteem was fragile and almost gone." They hired a tutor and worked with him on reading. But Mr. Greene also encouraged him to redefine his own worth, saying, "You're not measured upon rewards or grades. It's who you are that matters." And Ms. Greene told him, "Everyone has challenges. This happens to be yours." Wyatt now reads well and enjoys it. But the Greenes hope he also learned a sturdier basis for self-esteem.

Exaggerated praise can do harm, according to a study of 313 children ages 8 to 13 published this month in the Journal of Experimental Psychology. Parents who noticed that their children felt bad about themselves tended to pump up the praise when working with them, saying things like, "You're so smart," or, "You're such a good artist," researchers found.

But those children felt ashamed when they were defeated later in a simulated computer game; other children who received more realistic praise that focused on their effort or behavior didn't feel any shame, according to the study led by researchers at Utrecht University in the Netherlands. Well-meaning adults "may foster in children with low self-esteem the very emotional vulnerability they are trying to prevent," the study says. A better path is to praise children for the effort they invest, an element they can control, the study says.

Children who have a realistic understanding of how they are seen by others tend to be more resilient. In a 2010 study, 333 preteens played an online version of "Survivor," posting personal profiles and receiving peer ratings on their likability. All the kids who received low ratings experienced a drop in self-esteem, gauged via scores on a scale including such items as, "I feel good about who I am right now." But those who started the game with grandiose views of themselves and inflated feelings of superiority suffered the biggest declines in self-esteem, says the study in Child Development.

When researchers tried to lift the grades of struggling college students by raising their self-esteem, the students' grades got worse, according to a 2007 study of 86 students published in the Journal of Social and Clinical Psychology. Showering them with messages aimed at making them feel good about themselves may have instilled "a cavalier, defensive attitude," causing them to study less, the study says.

A Good Sport Remie Geoffroi

A Good Sport THE SITUATION: Your 10-year-old son's basketball team is on the verge of losing every single game in the season, and he is pouting on the bench and refusing to talk to his teammates.

Your 10-year-old son's basketball team is on the verge of losing every single game in the season, and he is pouting on the bench and refusing to talk to his teammates. DO: Say, 'I know it's really tough to finish at the bottom. I've been there, and it didn't feel good at all. But do you want to be that guy who gets mad and acts like a bad sport when you're losing? Or do you want to be the guy who is kind and encourages other people even when times are tough?' (Reminds the child of how his behavior will be seen by others.)

Say, 'I know it's really tough to finish at the bottom. I've been there, and it didn't feel good at all. But do you want to be that guy who gets mad and acts like a bad sport when you're losing? Or do you want to be the guy who is kind and encourages other people even when times are tough?' (Reminds the child of how his behavior will be seen by others.) DON'T: Say, 'You guys just didn't have the talent.' (While this is realistic, it could make the child feel defeated and devalued.)

Laural and Jim O'Dowd's 11-year-old son Cole is getting straight As in accelerated seventh-grade math classes, even though he's only in fifth grade. "It's hard not to say, 'That's awesome,' " and to congratulate him on his grades, says Ms. O'Dowd, an attorney who lives in Boulder, Colo. "But if we praise him constantly, his self-esteem becomes centered on always being very smart and being the best and being perfect. And when you get out in the real world, you're not necessarily No. 1."

Instead, she encourages behaviors he is able to sustain: "It's awesome that you're working so hard on your homework."

The O'Dowds also invite their kids to see themselves as others might see them. Cole often has trouble waking up in the morning and tends to be cranky with his three siblings, says Mr. O'Dowd, an at-home father and former engineer. When he lingered in bed recently and snapped at his 9-year-old brother Luke for no good reason, Mr. O'Dowd asked him: "So you want to be that person who nobody wants to talk to in the morning, because you can't be nice? Even if nobody says anything bad to you?" Mr. O'Dowd says. "You could hear the tires screeching in his world. He stopped moving. He stopped breathing. He looked at me for a very long moment. Then he hung his head, said, 'OK,' and went about getting ready for school."

"I try to teach my kids how to be considerate of other people," he says, "not just because it's nice, but because it makes your life better if you understand those around you."

Write to Sue Shellenbarger at sue.shellenbarger@wsj.com