It's nearly a decade now, since the first research was started into the idea of using virtual reality games as a form of pain control for burns patients, and in that time a solid body of evidence has built up, with patients reporting a 90% decrease in the pain they experienced when using the system during the game.
Researchers at Manchester are also finding that virtual environments can be very useful for treating patients suffering from "phantom limb" experiences following amputations.
Just as interesting is new work going into examining gaming's potential for treating psychological problems.
http://news.bbc.co.uk/1/hi/technology/7485089.stm
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