Large variation in placebo response within and among clinical trials can substantially affect conclusions about the efficacy of new medications in psychiatry. Developing a robust placebo model to describe the placebo response is important to facilitate quantification of drug effects, and eventually to guide the design of clinical trials for psychiatric treatment via a model-based simulation approach. In addition, high dropout rates are very common in the placebo arm of psychiatric clinical trials. While developing models to evaluate the effect of placebo response, the data from patients who drop out of the trial should be considered for accurate interpretation of the results. The objective of this paper is to review the various empirical and semi-mechanistic models that have been used to quantify the placebo response in schizophrenia trials. Pros and cons of each placebo model are discussed. Additionally, placebo models used in other neuropsychiatric disorders like depression, Alzheimer's disease and Parkinson's disease are also reviewed with the objective of finding those placebo models that could be useful for clinical studies of both acute and chronic schizophrenic disease conditions. Better understanding of the patterns of dropout and the factors leading to dropouts are crucial in identifying the true placebo response. We therefore also review dropout models that are used in the development of models for treatment effects and in the optimization of clinical trials by simulation approaches. The use of an appropriate modelling strategy that is capable of identifying the potential sources of variable placebo responses and dropout rates is recommended for improving the sensitivity in discriminating between the effects of active treatment and placebo.