‘Differential placebo effects’ is the concept that different types of placebos (e.g. inert pill versus sham device) may yield different magnitudes of placebo effects. This issue has been pushed into the spotlight by recent clinical trials of new technologies reporting unexpectedly large placebo effects from sham devices/procedures needed to maintain blinding integrity. In this Neurology Grand Rounds, we use transcranial magnetic stimulation as a model to explore the principles and implications of differential placebo effects. We highlight emerging research on the neurobiology of placebo effects and analyze fundamental questions of measuring efficacy in contemporary medicine.