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As you probably know, placebo means "I shall please" in Latin. Known since ancient times, the placebo effect is a well documented phenomenon in medicine, whereby a medicine or treatment either causes or seems to cause improvement or cure in a patient's illness which is not due to any real physical effect.
The classic paradigm of the placebo is the sugar pill1. The doctor gives the patient a pill containing simple sugar, delivering an optimistic prognosis as well. The patient reports that he feels immediately better upon taking the pill. The placebo effect can also work on those around the actual patient. Parents of children given a placebo may report improvement in their child's condition for exactly the same reasons. The placebo effect is dependent on the patient's desire to get better. It would not work on someone who wanted to die, for example.
This sort of obviously psychological effect can be understood as the effect that our preconceptions have upon our perceptions of reality. In this realm we are almost prisoners. It takes a great deal of mental effort to isolate our objective observations from our expectations; under most circumstances we seem not to bother with making the distinctions. Thus, because we want so much to get better, we perceive that we are getting better, even if such is not really the case.
The placebo effect is important in faith healing of all sorts. Reports of miraculous improvement or cure after such ministrations are common; actual documentation by impartial authorities is non-existent.
The large and profitable "health food" industry more or less runs on the placebo effect. Most "alternative" cures and therapies likewise would get little traction were it not for the placebo effect.
It is important to make a distinction between the placebo effect and the known stimulative effect of mood on the immune system. General psychological well being has been associated with better immune system function, although the mechanisms of these effects are not understood. This effect is hard to quantify but seems to be real; it probably reflects a hormonal link between the brain (especially the limbic system, which controls mood) and the immune system.
Placebos per se are officially frowned upon nowadays as a violation of physician-patient trust, since the effect is based upon deception of the patient - even if in a "good cause." But the placebo effect remains an important aspect of the therapeutic relationship of physician to patient, in the sense that we do generally feel better after a trip to the doctor even before the medicine takes effect.
An interesting parallel to the placebo effect is the nocebo effect. A nocebo2 ("I shall harm") is something that has an adverse effect upon the patient because he believes it will. That is to say, patients receiving a placebo may report that they feel better, but sometimes a placebo can have the opposite effect. Believing that they are taking an active medication, some patients develop side effects when taking a placebo. This is the nocebo effect.
1. A placebo pill is fundamentally different from the sugar pill that may be given to a patient in a controlled treatment study. In a controlled study, neither the patient nor the doctor administering the pill knows what it contains (a "double blind" study) until after the study data gathering is complete, the codes for the various treatments are unlocked, and the results tabulated and analysed.
2. Journal of the American Medical Association 2002;287:622-627.