The classic 1960s psychology experiment in obediency by Stanley Milgram has been recreated in virtual reality. In the original, participants were instructed to administer electric shocks to a woman apparently hurt by them, and followed instructions even at lethal levels. Ethical concerns prevented recreating it, but now in a virtual environment conditions can be simulated with no actual harm. Read more about the results.
Virtual reality has other applications, including treating people with phobias using gradual exposure therapy in VR. The Virtual Reality Medical Center is one company that offers a range of treatments, including VR-enhanced cognitive behavioural therapy for social phobia.
In a recent study, researchers used touch along with visual/auditory VR for spider phobia treatment (patients touch models of spiders as they grasp graphical ones) and found it significantly boosted results. Could be used for other treatments too, though I don’t think it would work with heights. Or agoraphobia.
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Kiume, S. (2016). Virtual Psychology. Psych Central. Retrieved on July 29, 2016, from http://psychcentral.com/blog/archives/2006/12/25/virtual-psychology/