I've already explained why the software sales cannot be count as lost. It's a standard function of supply and demand: if the price of good Y is too high for consumer X, consumer X will not pay for good Y. No ifs, ands, or buts about it. Though you can modify a consumer's willingness to pay for a good, there has been essentially no attempt to do so with PSP games (or video games in general, save hyped games; consumers are generally willing to spend a bit more on games that have especially gotten their attention in a good way). The simplest way to draw those consumers pirating at the moment would be to drop the price of the games to a level that they are willing to pay for them.

 What about piracy of PC games? You talk about proper training to pay for the things you want, but isn't PC piracy ridiculously high as well? I too think an economics course of some kind should be required, I don't know much about it myself. But I do have a feeling with as easy as it is to pirate on the PC and PSP, it's affecting the sales of both to some extent. I'm not saying it's killing the market or anything, but I think the sales would be higher if piracy wasn't a factor.

Eh Render covered it well enough.  I'd also add though, to people who think it's alright to pirate, it adds perceived value to a system.

For example I want a PSP for Jeanne D'arc and D&D Tactics, and that's about it.  It's just not enough to get me to jump over and get a PSP, though Skype was looking awesome and almost convinced me.

Now if I thought piracy was ok, that I might be able to get a bunch of games that might entertain me but i don't want to risk the money, or don't think it's enough entertainment for the money, the ability to pirate such games might be a selling factor because I would be getting so many for "free."

As such, piracy would of sold me a PSP, Jeanne D'Arc and D&D tactics, net hardware and software game individually.  Furhtermore say there is some genre i don't like that has a big game coming out on it... like... a Dating Sim or something. (only kind of game i can think of i don't like that can be done on PSP.)

It's getting high reviews so I think... hey what the hell... and get it just to see what the hype is about... then it sets off revolution and i think "Wow, i was wrong, these games aren't only just for 14 year old anime freaks!" and buy said game, or at the very least it's sequel.

It's situations like this that help end up making any "losses" even more statistically insignificant. 

Piracy of PC software is immense. Indeed, Microsoft in particular has a lot of its operating system software get pirated. Not surprising, really; they charge hundreds of dollars for it, way more than most consumers are willing to spend. And yet, Microsoft is one of the wealthiest (if not THE wealthiest) PC software makers in the world in spite of that. And do you know why? Because the piracy has not affected their business in the least. Those who pirate their operating systems aren't going to buy it otherwise, but their awareness of the Microsoft brand is present, and they are willing to pay for other, less expensive pieces of Microsoft software.

 Ok, one problem, Patapon piracy numbers are already high and the game is only $20. That isn't very expensive at all, and you think that would be lowered enough to draw people in. Even with a low price, some people just don't want to pay for certain products at all when they could get them for free. Patapon is popular, and cheap...but pirate numbers still prove high. Making piracy this easy in the case of the PC and PSP I think probably makes a majority of the pirates just not want to pay at all. What you both are saying makes a lot of sense, but something just doesn't add up for me. I'm not saying the same amount of people pirating would be the increased amount of sales but probably some form of increase would happen.

Here is the thing however. Patapon is a quirky game. Like say Okami. Most people are likely pirating it only because it is a high rated game and otherwise they wouldn't take a second look at it no matter the price.

There are plenty of "Popular" games that don't sell well.

See my above example of the minor positive effects piracy can have as well... any minor positve and negative effects likely aren't statistically significant but if it makes you feel better you could consider them canceling each other out... and why most studies find it peculier that piracy slightly increases sales though not usually of a statistically significant amount.

 Again, I never said this is killing the market or Sony, just making the software sales lower than they could be. The PSP seems reasonably priced now, $170 isn't as much as the original $250. Patapon seemed reasonably priced at $20....yet the pirate rate on that is pretty high also. All in all though, are you both seriously telling me software sales aren't affected at all by this?

The only time that piracy has an actually negative impact is when a consumer stops being a consumer and becomes parasitic instead. That is to say, they discard the idea of paying for goods and services entirely, even for things that they would have been willing to pay for before they made the decision. In this case, the negative impact is upon all goods and services that they previously would have paid for and will not now.

These are "true" pirates, and they're actually very rare. There is a rather cynical belief amongst many people that pretty much everybody is more than happy to go that route, and abandon all morals and ethics in favor of being a detriment to society. But the reality is that most people are not willing to abandon their morals and ethics, ingrained as they are from early childhood onwards. The cases where people do throw them away are usually due to their brain chemistry going out of whack, not due to them just saying "screw this" and turning their backs on the rest of humanity.

What you consider to be a reasonable price for a good, others do not necessarily. This is why supply and demand even works in the first place. There is an immense amount that goes into a consumer's decision to buy or not buy, more than most people are even aware of in their own purchasing decisions. Things such as budget constraints, personal tastes, personality, and mood at the time of purchase can all change what a consumer is willing to pay for a good.

 This is software though, not something physical. I don't know about everybody, but it seems something like that would be a lot easier to throw morals and ethics away for rather than shoplifting or something like that. I wonder if the "true" pirates you talk about go out and shoplift all the time?