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Dear Jack, there is no physical phenomenon that could be called the collapse. The collapse of the wave function, as first emphasized by Werner Heisenberg and then many others, is just the event when we learn something about a physical property of a physical system. When we learn that Osama bin Laden is located in a building in Pakistan, his wave function - that could have included possible positions at many other places - suddenly "collapses" because we learned about the position. That was pretty much Heisenberg's description of the situation.

The wave function is not an actual wave - like an electromagnetic wave. It is a collection of numbers that summarizes our knowledge about the physical system and that can be used to make predictions. Any attempt to "overinterpret" the wave function and "visualize" it as a real wave that objectively exists etc. is fundamentally flawed. The collapse of the wave function is just a process in our brain when we learn that the physical quantity $A$ has taken one of its values, $A=A_i$. When we learn it, we must replace the calculation of probabilities such as $P(B=B_j)$ by the calculation of the conditional probabilities such as $P(B=B_j|A=A_i)$. This replacement may be visualized as a collapse but no actual collapse occurs - and by this statement, I mean that all questions about the detailed "mechanism" of the collapse are based on an incorrect assumption that there is a mechanism.

Another question is at what sense it's possible to say that $A=A_i$ was "perceived" by "something" or "somebody". Quantum mechanics surely prevents one from declaring such a measurement too early. You never make an error if you continue to use the whole wave function and only "collapse" it in your mind when you want to learn some particular answers. So you may evolve the electrons, hammers, cats, and other people according to Schrödinger's equations so that the wave function spreads into many possibilities, and only when you know what you feel, you may make the "collapse" in your brain according to what you felt, and continue with the simplified wave function.

Alternatively, to simplify your thinking, you may imagine that the wave function for the other objects collapsed earlier than that - you're allowed to imagine that there was a collapse after a sufficiently "macroscopic" interaction. What it exactly means? It means an interaction in which the different values of various properties have "decohered" from each other. Decoherence is a derivation of the classical-quantum boundary - of the point at which it becomes pretty much legitimate to imagine that the objects have well-defined properties such as positions, just like in classical physics.

But one doesn't need to imagine that this reduction ever takes place.