Doctors in Texas are conducting a study of arthroscopic knee surgery that uses general anesthesia in which patients with sore, worn knees are assigned to one of three operations -- scraping out the knee joint, washing out the joint or doing nothing. In the ''nothing'' operation, doctors anesthetize the patient, make three little cuts in the knee as if to insert the usual instruments and then pretend to operate. Two years after surgery, patients who underwent the sham surgery reported the same amount of relief from pain and swelling as those who had had the real operations.

A recent review of placebo-controlled studies of modern antidepressant drugs found that placebos and genuine drugs worked about as well. ''If you expect to get better, you will,'' said Dr. Irving Kirsch, a psychiatrist at the University of Connecticut who carried out the review. His findings were met with a great deal of skepticism.

And a recent study of a baldness remedy found that 86 percent of men taking it either maintained or showed an increase in the amount of hair on their heads. But so did 42 percent of the men taking a placebo.

Some studies are specifically designed to explore the power of placebos rather than drugs. On Coche Island in Venezuela, asthmatic children were given a sniff of vanilla along with a squirt of medicine from a bronchodilator twice a day. Later, the vanilla odor alone increased their lung function, 33 percent as much as did the bronchodilator alone.

And at Tulane University, Dr. Eileen Palace is using a placebo to restore sexual arousal in women who say they are nonorgasmic. The women are hooked up to a biofeedback machine that they are told measures their vaginal blood flow, an index of arousal. Then they are shown sexual stimuli that would arouse most women. But the experimenter plays a trick on the women by sending, within 30 seconds, a false feedback signal that their vaginal blood flow has increased. Almost immediately they then become genuinely aroused.

Placebos are about 55 percent to 60 percent as effective as most active medications like aspirin and codeine for controlling pain, Dr. Kirsch said. Moreover, placebos that relieve pain can be blocked with a drug, naloxone, that also blocks morphine.

For a while, many scientists thought that placebos might work by releasing the body's natural morphine-like substances, called endorphins. But that is not the only explanation, he said. While placebos can act globally on the body, they can also have extremely specific effects. For example, a study was carried out in Japan on 13 people who were extremely allergic to poison ivy. Each was rubbed on one arm with a harmless leaf but were told it was poison ivy and touched on the other arm with poison ivy and told it was harmless. All 13 broke out in rash where the harmless leaf contacted their skin. Only two reacted to the poison leaves.