The badges system is indeed something which holds you on the website. Altogether a very nice UI throughout. It has a lot of UI features which should be copied by others

This site's "person rank" is a similar kind of badge.

But for someone to be tagged "Scholar" simply because someone accepted one of their answers is a bit "over the top". They may also have posted 99 answers that were total garbage.

There is a delicate balance to be reached between encouraging new users and diluting the value of a badge, making it difficult for someone trying to evaluate the true skill of an expert. Stackoverflow seems to lean far in the direction of using badges as encouragement rather than an indicator of real quality.

I think a reputation system like Stack Overflow's can be very powerful and keep users coming back.

That said though, I think Stack Overflow makes some huge mistakes in what is overall a good system.

A sample use case: I'm a new user and I notice a bug in an otherwise acceptable solution that people have already upvoted a few times. I go to make a comment informing of the bug, but apparently I need 50 karma -even to make a comment-. I get annoyed and I leave. (This actually happened to me.)

I think using reputation to provide positive reinforcement to users is a great thing, but to restrict basic actions upon on that reputation is bad. When making a system like this, I think a good user experience developer would ensure that a new user can do everything they'd normally expect to be able to do, and gain access to more special features down the line.