Grounding is a form of punishment given to children, usually older children, preadolescents or adolescents by their parents or teachers or headmasters/headmistresses/principals for bad behaviors and poor performances. In the terms of behavioral psychology, grounding is a negative punishment because it involves the removal of desired things, rather than the addition of undesired things.
Every now and then, a young person who is grounded is banned from leaving home or their room to go anywhere other than to attend required activities such as school, meals, music practice, etc. Grounding does not necessarily mean people are unable to come over, only going out is prohibited. It is commonly combined with the withdrawal of privileges such as the use of computer, Internet, trick-or-treating, video games, television, telephone, automobiles, radios, musical instruments (unless it is used for required activities, such as music practice), mobile phones, prom, slumber party, movie theaters, DVD's, VHS tapes, etc., and some children may get a spanking or may even be sent to bed early. Some children also get time-outs, either sitting or standing in the corner. Depending on the severity of the person's behavior, some groundings can last from as short as a day or two, to as long as a month or year, while some last an indefinite amount of time.
A study done by Robert Larzelere shows that the grounding punishment can, in fact, produce a negative antisocial effect on the individual. 
The term most likely originated in the aviation community. When an aviator is restricted from flying due to misconduct, illness, or other reasons they are said to be "grounded."
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