Let's use an excerpt from Dan Ariely's book Predictably Irrational:
Consider your current consumption of milk and wine. Now imagine that two new taxes will be introduced tomorrow. One will cut the price of wine by 50 percent, and the other will increase the price of milk by 100 percent. What do you think will happen? These price changes will surely affect consumption, and many people will walk around slightly happier and with less calcium. But now imagine this. What if the new taxes are accompanied by induced amnesia for the previous prices of wine and milk? What if the prices change in the same way, but you do not remember what you paid for these two products in the past?
I suspect that the price changes would make a huge impact on demand if people remembered the previous prices and noticed the price increases; but I also suspect that without a memory for past prices, these price changes would have a trivial effect, if any, on demand. If people had no memory of past prices, the consumption of milk and wine would remain essentially the same, as if the prices had not changed. In other words, the sensitivity we show to price changes might in fact be largely a result of our memory for the prices we have paid in the past and our desire for coherence with our past decisions - not at all a reflection of our true preferences or our level of demand.
Students who have come to be motivated by extrinsic manipulators such as gold stars, cash and/or grades should not be accommodated as if this were their own unique learning style - rather this should be seen as a problem to be solved.
Students who may refuse to learn without some kind of artificial inducement are the students who need us to rid our teaching tool boxes of grades the most.
The good news here is that it is my experience that students who are detoxed from grading do eventually forget about them. The absence of grades, over time, induces a kind of grading amnesia that encourages students to no longer see real learning simply as a mundane means to an end.
Just as an alcoholic may suffer from withdrawl, so do parents, students and even teachers suffer from grade-withdrawl, but if you can stay-the-course and fight through these short-term 'shakes', you can create a learning environment that turns real learning into the implicit and explicit essence of school.
In the short-term, some students may see your grade-less class as a lower priority, but in the long run they'll come to see you less as a grade collector and more as an educator.