Neutrality, as a lasting principle, is an evidence of weakness.
In many games with a Karma Meter, you get extensive bonuses in terms of specialmoves, bonus interactions and influence with squadmates. But you tend not to get too much for not being an utter saint or bastard.
People who take the middle of the road miss out on all the nice event flags, combat bonuses and team relationships that moral or immoral characters gain. Rarely is it that a game plans a specific path for a neutral character. In many cases this is taken to the extreme with the game not even recognising the neutral path. Equally, if there's an axis for Order Versus Chaos, people who take the neutral path there are not going to be recognised for their behaviour. Game designers almost seem to assume that players will go to one extreme or the other.
At the extreme end of this, players trying to maintain neutrality may be forced into doing one good thing and then immediately doing an evil thing to balance it up, for example, saving an orphanage and then killing the orphans inside immediately after they say thank you for saving them to maintain the balance after finding there is no "Ignore the orphans' plight altogether" option available. Many developers don't even make a neutral option, forcing you to go good or evil. Some may even actively torpedo considered ways to go neutral à la Railroading.
The end result is a character who may have missed out on crucial special abilities, who will not have gained from any morality-related side quests and whose relations and issues with his team will be unresolved to a large extent, leaving a weaker team and an empty, unresolved feel to the game.
In short, being neutral sucks.
One of the principal reasons for this is that the number of ways to deal with a problem that aren't obviously "good" or obviously "evil" is enormous. Each player might have their own different ideas about how to go about it, and they wouldn't be happy if you offer 5 choices where none of them are theirs.
Even harder is how to effectively communicate what these possibilities are to the player. Nuanced morality options don't work if the player doesn't understand all of the nuances involved. Even with diametrically opposed morality options, some players become confused about what an option really means until they actually press it. Adding nuances to that makes it a lot more difficult to really know up front what you're getting.
One way of balancing this up is to make a hero demand an exorbitant reward for his or her services in doing good things, or generally acting against evil but for money and rewards instead of for doing good. Well, unless you want to run a character who does good for the sake of good, but isn't going to turn down extra money while they're at it. It helps them do good works.
Another way would be to make sure that in addition to any extraordinary bonuses, going to either extreme also results in restrains, as options open to the other side are now blocked. This puts neutrally-minded players in the realm of Boring, but Practical and/or Combat Pragmatist — perhaps (to some) less interesting, but certainly playable way of getting through the story.
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In Baldur's Gate, you can play a neutral alignment, but most quest rewards are based on a good/evil option, and rewards are biased towards good, subverting the normal temptation for players. Neutral-aligned party members will stay with a group with saintly reputation despite occasionally complaining, and even evil companions will only leave at the highest (19-20) reputation levels.
Furthermore, the end of the second games have the 'Hell Tests'. These have only two outcomes: Good and evil. If you pick the evil choice a single time, your characters' alignment becomes Neutral Evil (in the first versions of the game, it even did this if you were Lawful Evil or Chaotic Evil). Thus, being neutral boils down to being good.
Knights of the Old Republic forces you to miss out on the top range upgrades for certain force powers if you aren't the right alignment. Good characters miss out on top-range bad powers like kill, Evil characters lose the best healing-related arts, and neutral characters don't get any of the top-tier abilities.
Also, if you max out the karma meter in either direction, you get a substantial bonus to one of your stats. You get nothing at all for maintaining perfect neutrality aside from being able to cast Force abilities from either side of the spectrum without the opposite alignment penalties.
This is why cross-class mods are very popular for Carth and Mission. They're actually higher on the Karma Meter than the Jedi you recruit and get some interesting bonuses as a result.
The sequel (although it was made by Obisidan) averted this by make your Pet Crystal super-powerful if you are neutral. But, it's mostly non-averted: to get a prestige class, you need to go to the extremes...and you would still have a pretty decent crystal.
Star Wars: The Old Republic: Certain relics and clothing can only be worn by people with the correct dark/light side rating; although the end-game relics are alignment neutral. In addition, all of your characters gain access to a light-side (50% reduction of damage taken for you and your companion for 12 seconds) or dark-side (feed on half of your companion's health instantaneously) ability at the respective maximum alignments. You only need to reach max alignment on two characters to unlock each of them for all your characters on the server however; so a tier 5 dark-sider can use the light side ability and vice versa. Although the two abilities do share a cooldown.
Mass Effect 2 characters who avoid going Paragon or Renegade lose key dialogue options which can be crucial to resolving conflicts without having to get into a fight, as your Karma Meter directly determines what Charm or Intimidate options are available.
Averted in the first game. Your Karma Meterunlocks the full range of the Charm and Intimidate skills, but there you can max out the skills and then start a New Game+ to play as you want while keeping the rewards.
Even further averted in Mass Effect 3 since Paragon and Renegade now both add to the same bar, the Reputation bar, which can also be increased by getting non-alignment reputation points (which increase the size of the bar while maintaining the same Paragon to Renegade ratio).
Jade Empire has a choice of really powerful techniques you can only learn if you're strongly aligned with one end of the meter or another. Open Palm gets Stone Immortal and Paralyzing Palm while Closed Fist gets Tempest and Hidden Fist.
Thankfully averted in Dragon Age: Origins. The karma meter has been removed completely, replaced with personal approval meters for your companions. But you don't have to pander to them. You can also bribe them with gifts and act however you want to otherwise.
Played with in Dragon Age II. The Dialogue Tree averts it - the top option is generally nice, the bottom option is usually the nasty one, and the central, "neutral" option is snarky, charming, and gets all the best lines.
Played straight with the Friendship/Rivalry meters and the Mage-Templar conflict. Choosing not to go for full friendship or rivalry with companions deprives them of special abilities, removes romance options, in Isabela's case she ditches you in Act II, and ensures that they will side against you in the endgame if you pick a side they don't like. Being wishy-washy with the Mage-Templar conflict throughout the game will deny you access to sidequests in Act III (but active peacemaking gets you extras as they both try to sway you to their side). And in the end, you have no choice but to pick a side anyhow.
Although Dark Forces 2, at least, is an aversion: only full Light- or Darksiders can use the most powerful Force powers, but neutral characters can use a balance of both, making them more versatile.
Everything after the first Jedi Knight either has only one ending or a single moment where you choose. Kyle himself is in fact neutral, being loyal to the Republic but not actually a follower of the Jedi philosophy and with full access to all the force powers from both sides in the later games. Jaden from the last game will probably also end up this way for most players, since the good-aligned powers are totally useless other than healing.
Given that in Jedi Academy your Light-side or Dark-side alignment is decided by pretty much one choice with no effect on gameplay besides the final mission (Luke and Kyle caution you about using too many Dark-side powers between missions if you take too many but there's no effect besides that), it's entirely possible that you'll wind up as a Light-side character with loads of Dark-side powers. That guy using loads of arc-lightning and telekinetically throwing people off of high things? Yeah, he's a good guy. Can't you tell?
Fable is a notable aversion of this. While there are times where you have to make a flat Good or Evil decision, most of these are pretty clear-cut cases (will you spare the bandit or kill him?) and you don't recieve any penalties for staying neutral. The townsfolk will even comment on this, discussing your characters unpredictability. The ending of the Lost Chapters is pretty neutral, coming down to a straight fight between you and the villain.
Fable 2 likewise doesn't really penalise you for staying neutral, other than affecting prices, and even then you don't have to be a paragon of virtue or the scariest person alive to talk the townsfolk into giving you a better deal. There are also more neutral choices. At the start of the game, you have a chance to free some townsfolk or let them become slaves for a bribe. One of the options is to walk clean away from the situation altogether after the bandit attacks you anyway, leaving them in their cages for someone else to either let out or enslave. You've cleared the roadblock to Bowerstone, from your perspective it's someone else's problem. And there is an explicitly neutral ending option.
Averted in Shadow the Hedgehog. Going down the "neutral" path means not helping either the heroes or Black Doom, but instead going after Dr. Eggman. The main conflict still goes on, but Shadow isn't much of a factor in it. Though, individual levels, especially those on the extreme ends of the map, can sometimes play this straight if there's no neutral option. And the game does take this trope's title literally- the good and evil goals add and subtract points based on your morality, while the neutral goals ignore morality and only judge your score by speed and rings collected.
inFamous: If you're not a total saint or utter bastard, you're limited to the basic combat powers that you start with.
Averted in Catherine. Neutrality is a perfectly viable option for the player from beginning to end, and the neutral path offers some very satisfying endings.
First Person Shooters
BioShock rewards you for saving the lives of little sisters instead of killing them for ADAM, but you only get the good ending for saving all of them; the 'neutral' finale is almost identical to the 'evil' one. The sequel has more moral options and more variations depending on your choices through the game. Averted by its sequel which does have a neutral ending. Two in fact (chosen by a Quicktime Event).
Mostly averted in Ace Combat Zero. Playing the 'Soldier' Ace Style is just as viable as the two others, but it's much harder to maintain, particularly if you're after the Supreme Soldier medal, which requires you to finish the game with the karma meter almost perfectly in the middle (in essence, you need to shoot down exactly half the yellow targets in every mission)
City of Heroes has a few examples of this. On one hand, you have the level 1-20 Praetorian content, which forces you to be either a Loyalist or Resistance fighter. However, each side has two different inner factions which are functionally either good-hearted (you're trying to subvert the other side without risking lives) or hard-line extremist (allowing citizens to die or even actively killing them in pursuit of your goals). Then you're forcefully booted into Primal Earth as either a hero or villain (no staying a Praetorian), at which point you can side-switch between Hero, Vigilante, Villain, and Rogue. Vigilantes and Rouges can go to the "other side's" areas and run missions, but only full heroes or villains have the benefit of being able to earn special currency to help get the rarest items in the game. All that aside, former Loyalist Praetorians are nonetheless forced to fight Emperor Cole in the end-game content.
In Anarchy Online, players join the Mega Corp. Omni-Tek, the Clans fighting them, or the neutrals, who are just trying to stay out of the mess. Neutrals can go anywhere without being attacked by either faction, but miss out on a lot of good Omni and Clan-specific equipment.
Played straight in Arcanum, where there is a gauge that measures whether you use technology or magic more. If you stray too far in either direction, things from the other side won't work with any reliability. If you remain neutral, you can use both magic and technology, but the spells will be notably weaker than when cast by a full mage and likewise inability to learn and use the best technology. Actual alignment gauge, however, effects almost nothing and you are free to stay on it wherever you want.
The alignment gauge affects which companions you can have with you. Good aligned companions will refuse to follow an evil protagonist and vice versa, while a neutral protagonist can have any companion follow them.
Averted in The Witcher. The neutral path is actually the path closest to the source material. The neutral path also opens up several rewards and cutscenes that are not available to the other extremes. Besides, neither side is really good or evil so in the end it's a choice between three alternatives where the neutral choice is simply a choice not to choose (some quests have to be abandoned or avoided altogether to get the neutral path thus avoiding the Stupid Neutral problem).
In the text-based MUD Dark & Shattered Lands, there are gods of Good, Evil and Neutrality, and characters are required to pick one at character creation. Unfortunately for the neutrals, the whole game is an enormous battle between good and evil, and all of the useful options and killer clans are aligned as such.
Averted in Nethack, where neutral characters are expected to follow their own set of behaviours that are more distinct than those of chaotic and lawful characters, as well as possessing their own set of gods and Infinity+1 Sword.
Of course, the neutral path is usually the hardest in SMT games. For most obvious choices in each game, a lawful character in a scenario might have to beat a chaos boss, while a chaos character has to beat a lawful boss. In neutral play throughs, you typically have to beat BOTH bosses to continue.
Played with in Shin Megami Tensei III: Nocturne. It eschews the tradition of basic "Law, Neutral, Chaos" alignments, and instead asks you to sponsor one of the three opposing "Reasons" that will serve as the basis for the new world God will createnote and you fight his avatar to prove your worth, plus a True Demon ending where you blow everyone off and side with Lucifer insteadnote where you don't fight God's avatar as a test, but to destroy it. But its equivalent "Neutral" paths are also divided: if you devote yourself to your neutrality and fight to restore the world to what it was, you earn the "Freedom" ending where the world is saved despite earning God's enmitynote you fight him to force hem to undo the end of the world... but if your choices are noncommittal and dubious, and you lack the conviction to stand up for yourself, then God becomes disgusted with you and ignores you outrightnote you're not even worthy of a final boss battle, earning you the "Demon" ending where the remaking of the world stalls out and leaves it stuck as the demon-filled Vortex World.
Inverted in Record Of Agarest War (known as Agarest: Generations of War in certain areas, and on certain systems.) You're basically working for the embodiment of Balance, and one of the main challenges in the game is to stay Neutral - various choices will push you towards either Light or Dark, and if you go too far in either direction, you'll end up missing recruitable characters and other good stuff. On top of that, the best ending - and, indeed, most of the arguably 'good' endings, requires you to be Neutral at key points. So basically, there's No Points For Anything BUT Neutrality.
Fallout's one-dimensional meter (positive is good, negative is bad) means that if you're neutral, no matter how much you've done, people will act like they've never heard of you.
In Fallout: New Vegas, the karma meter has virtually no effect on any part of the game until the ending, as your reputation with various factions is far more important. Morality is essentially replaced by ideology, and the way that the whole system is set up makes it impossible to take a neutral stance. By the end of the game, whatever you have done up to that point has been done for the sake of a cause.
In Twilight Heroes, there are bonuses for having a certain Reputation, but only if that reputation is at one end or the other of one of the two Karma scales (Honor and Selflessness).
The roguelike Omega has a pantheon of religions, two pointing to each of Law, Chaos and Religion. One of the neutral gods explicitly lampshades this due to the messages saying your choice was completely useless each time you advance in that religion. However, it does give a safe path to the endgame.
Etrian Odyssey III: The Drowned City has three solutions to the central conflict. If you side with one of the two factions, you unlock one of the secret classes and can fight special one-time bosses that drop materials required for high-powered gear. Taking a third option and remaining neutral, playing both sides long enough to discover another solution, does not unlock another class, and its material rewards are arguably not as good. Instead, your main reward is the fuzzy feelings of not having to kill the leaders of the 'other' side.
In The Sims 2: Apartment Life neutral witches only get half the number of spells as their good and evil counterparts (due to neutral spell being able to be cast by any witch, while good and evil spells can only be cast by their respective alignments), and cannot craft any special witch furniture, such as the motive restoring thrones.
However, if a witch is fully neutral, the gain the ability to stop time.
Averted in Galactic Civilizations II: When your civilization chooses an alignment, all three alignments (good, neutral and evil) have bonuses. Some players even argue that the Neutral choice gives the best bonuses.
Keyword here is choose. The permanent alignment selection is a Screw the Rules, I Have Money! event that allows you to totally ignore your Karma Meter and set your alignment to whatever you want as long as you can pay for it. But up till then, the game plays this straight. The best bonuses from Karma Meter actions almost exclusively favor Evil choices while having Good alignment helps you diplomatically. Neutral gets neither.
Not entirely true... some of the evil choices also come with a drawback, frequently killing some amount of your slaves citizens, while the neutral ones tend to give you a small benefit for no downside.
Inverted in Ogre Battle, where keeping your leader neutral allows the recruitment of more special characters.
Dune II: Battle for Arrakis features the noble Atreides, the dastardly Harkonnen...and the CleverOrdos. The Ordos, as it turns out, get new, heavier vehicles one or two turns after everyone else already does. Their unique units also tend to be inferior to those of the other factions.
Totally straight in Lords Of The Realm 3. In long games, Good-aligned players will attract various champions, as well as four archangels. Evil-aligned players amass an army of infamous villains, as well as the four Horsemen of the Apocalypse. Neutral-aligned players have no special benefits to speak of.
Medieval II: Total War: has this. You'll get bonuses to your chivalry stats if you keep taxes low and do other "honourable" things while governing your lands and leading your men to battle, and dread points as your characters march merrily towards villainy burning, raping, pillaging and taxing all the way. But you get nowt for more moderate decisions (keeping the taxes at neutral, sacking towns rather than exterminating or peacefully occupying them in a manner unlikely in an undisciplined medieval army, or ransoming prisoners, the normal method of returning captured soldiers to their side.) Except for lots of money. Sacking and ransoming may not lead to you being feared or loved, but you'll be much wealthier from it.
In the Civilization games, if you try to remain neutral, you'll suffer a lot of diplomatic penalties (particularly on harder difficulties and AI who are designed to be love war like Montezuma).
Aversion: The Suffering has a Good, a Bad and a Neutral ending. The sequel has a straight example — it gives you upgrades to your Super Mode that vary depending on whether you're good or evil. There's only one neutral upgrade, and it's not all that impressive.
Third Person Shooter
In Warframe's Gravidus Dilemma event, you have to pick a side to support more. If you try to support both Corpus and Grineer equally, the points will cancel each other out and you'll get no reward at all.
Yahtzee regularly lampshades this in Zero Punctuation, even providing this page's quote. His main gripes are that it feels like he's being forced to play the game twice, and that the two sides are often mutually exclusive. He even calls out games he otherwise likes on this, such as inFAMOUS and its sequel.
Plus, the fact that instead of the player wondering about the moral implications of each choice given, there's only the choice between "Take the good/evil option since I took the good/evil option during the previous choice" or "Suck". In his opinion, such games might as well ask you once if you want to do a good or evil playthrough at the start of the game and be done with it.
Tabletop Role-Playing Games
Averted in earlier editions of Dungeons & Dragons. Many alignment-specific abilities (protection from good/evil, detect good/evil) were removed from the latest edition because many players chose neutral characters for the sole reason to be immune to these abilities.
Additionally, 3rd Edition split the Detect Alignment spell into Detect Evil, Detect Good, Detect Law, and Detect Chaos. If someone registered false to all four, he was either True Neutral, or magically masking their alignment.
Mind you, a thoughtful DM can subvert this by applying half the penalties/bonuses that a good or evil character would receive to a neutral one. It does nothing for single-point changes or detection, but it's a start.