It's really simple, and complicated at the same exact time. In a nutshell, if the mind truly believes something, it is a reality. It's almost scary. I remember hearing about a story where a man got locked inside of a refrigerated truck I believe it was, and he ''froze'' to death not because it was cold in there, but because he THOUGHT the freezer was on.
'' [He was] convinced he will die and begins writing letters. His letters end with a final passage where he is saying he can not write anymore because his fingers are beginning to freeze. When they find him dead, not only do they find the letters but they discover that the freezer's temperature never dropped below 50 degrees.'' ~ from the Snopes article on the incident. Obviously not all things can be cured/treated by the weirdness of the placebo effect, but if your mind is in the right state and is open to the situation completely, the placebo effect could literally save your life somehow someday.

I presume you know these articles by Marcia Angell from a few years ago:

http://www.nybooks.com/articles/2011/06/23/epidemic-mental-illness-why/

The old question is, what was the right diagnosis in the first place, what were the people involved trying to diagnose, and what does 'getting better' involve? My ex-partner, who suffered a terrible mental breakdown from which, in her and my view, she only recovered with the help of anti-psychotic drugs, now carries on a happy life with a regular dose of anti-depressant which probably has no pharmacological effect. This is the sort of creature we are.

These are the sorts of area where I wonder whether 'the intelligibility of the world' addressed in another thread is being properly defined by us on the forum. That discussion very much focussed on scientific intelligibility of a particular way of looking at 'the world'. But how do we make jealousy, or grief or madness or the finitude of life intelligible? My view is that we do so by intelligent conversation, discursive essay, art, spirituality and, for those who are so inclined, religion, and that 'science' has little help to offer in making such fundamental problems 'intelligible' to us. But I hope I'm not hijacking this thread by mentioning something that's been on my mind.

Well, if you look at some studies most of the drugs used do outperform the placebo effect considerably, depending on how sensitive the patient is to suggestions.

The placebo effect must be in some way related to quantum mechanics. It's like Schrodinger's cat; but, in this case it is an effect on the brain.

One way a placebo effect might help a mental distress problem would be self-organisation. If one can follow a regime of timed pill-taking, one can recognise in oneself powers of self-control. I'm inclined to feel that looking at quantum mechanics is to keep looking in the wrong sort of place, but that's my bias.

The placebo effect seems to work across the board with illnesses--in a fraction of cases. Placebos have been reported giving beneficial effects on cancers, immune system disorders, and so on. However, the benefit isn't so certain that anyone would want to count on the placebo effect for something life threatening or serious. In addition, there are spontaneous remissions which are not related to placebos or interventions. Some people have gotten better on the basis of prayer. (Did the prayer work? I highly doubt it, it was likely a "spiritual placebo".)

How can placebos work? The CNS supervises the entire body down to the level of fine minutiae. The immune system and the CNS work together, most of the time, for reasonably good results. However, we know that without effective medical intervention a lot of people would be dead. One of cancer's strengths is deceiving the immune/CN systems--"Hey, I'm not here -- there's nothing wrong with us." Perhaps spontaneous remissions or placebo effects are the result of the Immune/CN systems getting wind of the cancer's presence and then coming up with an effective attack. After all, one of the theories about cancer is that it occurs very frequently and is immediately suppressed by the body's immune system.

My guess is that a placebo effect might help some people with certain symptoms of major mental illness like schizophrenia or bi-polar disorder, but I don't know. People who are mentally ill can certainly pull themselves together to some extent, at least when they are not acutely ill. I doubt if somebody who is acutely psychotic would respond to suggestion.

Bio-neuro-chemistry is complicated. I know of a fellow who has a degenerative nerve/muscle disease who was also chemically dependent, severely depressed, and delusional. His MI was life threatening. He received regular shock treatment for several years with limited but noticeable improvement. What turned his case around was a psychiatrist who was familiar with his particular degenerative disease knowing that a specific dose of caffeine administered immediately before the shock treatment was far more effective than a tranquilizer before ECT. The difference this approach made was very dramatic. He wasn't back to normal instantly, but within a relatively short period of time (several weeks) he began recovering personality traits (sense of humor, talkativeness, etc.) that had been missing for maybe 5 years.

As far as I know there isn't a good theory why caffeine works far better than a tranq, but it does--for patients with this nerve-muscular disorder. Placebo effect? Don't know.

I think you need to be clear that placebo's do not cure mental illnesses which have physiological bases. But then nor do most (if not all) drugs used in such cases. The best outcome in cases of schizophrenia or bipolar disorder, for example, is to establish control over the frequency and severity of attacks and placebos are rarely, if ever, as effective in such conditions as direct correction of brain chemistry. Placebos are always most effective in patients who essentially think they are ill, the worried well who consume by far the greatest part of medical practitioners' time and energy, because they make then think they're getting better, although as that in itself is largely simply the effect of being taken seriously, given professional time, and just having someone care, if only for a brief time, it's questionable whether any physical 'pill' need be administered at all. After all 'talking therapies' are often equally effective.