Activation of the sympathetic nervous system is useful in order to escape danger, or when extra effort may produce some large reward. However it uses a lot of energy and damages the body (stress), so unnecessary activation is to be avoided.
The sympathetic nervous system must react quickly to events, and is therefore a simple fast system decoupled from the slow conscious mind (as are various other useful reflexes such as ducking). As it is a simple system, it makes mistakes: it sometimes activates when not needed. A mechanism is necessary for the conscious mind to be able to condition the sympathetic nervous system not to activate in situations where it is not needed. That mechanism is laughter.
The sympathetic nervous system is fast to activate, but slow to shut down. Laughter may be induced by:
1. Activating the sympathetic nervous system, for example by presenting some form of danger.
2. Swiftly removing the danger.
Some stimuli are resistant to this conditioning, such as tickling and cold water. These stimuli will always cause activation of the sympathetic nervous system, however it is possible to choose whether they induce laughter, fear, or anger. If a person perceives these not to be a threat they will always laugh, no matter how many times they are repeated.
Activation of the sympathetic nervous system is empathetic; If you see someone who is excited or fearful, you will become excited or fearful also. Thus laughter also needs to be empathetic, so that this kind of activation is also properly deconditioned. Therefore, there are audible and visible signs that a person is laughing.
To reduce stress, laugh.
Update 3 June 2004: On further reflection, I have some doubts about this theory. Oh well.