Combination of a number of factors in Hollywood I think. Busy parents will outsource their childcare to others, generally hedonistic lifestyle and personalities that value theatrics over any real substance, and the overabundance of money and nobody willing to tell you no, all together leads to this sort of stuff happening. Any one of those things by itself isn't really sufficient to give us the messed up Hollywood kids that we see, rich people often use nannies but many don't spoil their kids. Middle class parents often spoil their kids but aren't absent from their lives. Poor parents often are absent but the lack of money keeps the kids from thinking themselves gods.

There's loads of stuff that's bad for kids in general, and there are some Hollywood parents that can do it right but I think that involves a certain rejection of the "Hollywood lifestyle" and treating the acting job as just that, a job. But it takes a rare person for that not to feed their egos to the point of problems.