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The basic premise of applied psychology is the use of psychological principles and theories to overcome problems in real life situations. Many areas of our lives and society have been influenced and changed by the often unnoticed application of psychological principles. Mental health,organizational psychology business management, education, health, product design, ergonomics, and law are just a few of the areas that have been influenced by the application of psychological principles and findings. The umbrella of applied psychology includes the areas of clinical psychology, counseling psychology, industrial and organizational psychology, occupational health psychology, human factors, forensic psychology, engineering psychology, as well as many other areas such as school psychology, sports psychology and community psychology. In addition, a number of specialized areas in the general field of psychology have applied branches (e.g., applied social psychology, applied cognitive psychology). However, the lines between sub-branch specializations and major applied psychology categories are often blurred. For example, a human factors psychologist might use a cognitive psychology theory. Is this human factor psychology or applied cognitive psychology?

So what sets applied psychology apart from other categories of psychology? An example helps to best explain this. Lets say there is a small team of cognitive psychologists researching attention span. They like many researchers are at a university using 18 year old undergrads as participants in the lab located next door to their office. They collect statistically significant data and develop a model for how to suddenly grab a person's attention. An applied psychologist will take this concept and see how this newly developed model implements in their particular sub-field. A human factors psychologist might use the cognitive psychologists finding to develop a system that gets drivers attention enabling the driver to avoid car wrecks. An environmental psychologist might use the same laboratory findings to attract students attention to a particular area of the classroom thus increasing learning. Applied psychology is being implemented into peoples everyday lives, and improving their lives, though it is rarely noticed or being credited as an application of psychology.

One founder of applied psychology was Hugo Münsterberg. He came to America from Germany, and, like many aspiring psychologists during the late 19th century, originally studied philosophy. Münsterberg had many interests in the field of psychology such as purposive psychology, social psychology and forensic psychology. In 1907 he wrote several magazine articles concerning legal aspects of testimony, confessions and courtroom procedures, which eventually developed into his book, On the Witness Stand. The following year the Division of Applied Psychology was adjoined to the Harvard Psychological Laboratory. Within 9 years he had contributed eight books in English, applying psychology to education, industrial efficiency, business and teaching. Eventually Hugo Münsterberg and his contributions would define him as the creator of applied psychology. In 1920, the International Association of Applied Psychology (IAAP) was founded, as the first international scholarly society within the field of psychology.

Clinical psychology includes the study and application of psychology for the purpose of understanding, preventing, and relieving psychologically-based distress or dysfunction and to promote subjective well-being and personal development. Central to its practice are psychological assessment and psychotherapy, although clinical psychologists may also engage in research, teaching, consultation, forensic testimony, and program development and administration. Some clinical psychologists may focus on the clinical management of patients with brain injury—this area is known as clinical neuropsychology. In many countries clinical psychology is a regulated mental health profession.

The work performed by clinical psychologists tends to be done inside various therapy models, all of which involve a formal relationship between professional and client—usually an individual, couple, family, or small group—that employs a set of procedures intended to form a therapeutic alliance, explore the nature of psychological problems, and encourage new ways of thinking, feeling, or behaving. The four major perspectives are psychodynamic, cognitive behavioral, existential-humanistic, and systems or family therapy. There has been a growing movement to integrate these various therapeutic approaches, especially with an increased understanding of issues regarding ethnicity, gender, spirituality, and sexual-orientation. With the advent of more robust research findings regarding psychotherapy, there is growing evidence that most of the major therapies are about of equal effectiveness, with the key common element being a strong therapeutic alliance. Because of this, more training programs and psychologists are now adopting an eclectic therapeutic orientation.