[xoxoxoBruce]

Hey sailor, want a little head, only $25... or a gun.
That was the going price for a tsantsa (real shrunken head), from the Jivaroan peoples, prior to possession being outlawed by Ecuador & Peru in the 1930s. The US followed suit in the 1940s.

The practice of preparing shrunken heads originally had religious significance; shrinking the head of an enemy was believed to harness the spirit of that enemy and compel him to serve the shrinker. It was said to prevent the soul from avenging his death.
Shuar believed in the existence of three fundamental spirits:

Wakani - innate to humans thus surviving their death.
Arutam - literally "vision" or "power", protects humans from a violent death.
Muisak - vengeful spirit, which surfaces when an arutam spirit-carrying person is murdered.

To block the last spirit from using its powers, they decided to sever their enemies' heads and shrink them. The process also served as a way of warning those enemies. Even with these uses, the owner of the trophy did not keep it for long. Many heads were later used in religious ceremonies and feasts that celebrated the victories of the tribe. Accounts vary as to whether the heads would be discarded or stored.

But most of the tsantsa out there are phony.

Also encouraged by this trade, as early as the 1870s people in Colombia, Panama, and Ecuador unconnected to the Jívaros began to make counterfeit tsantsas. They used corpses from morgues, or the heads of monkeys or sloths. Some even used goatskin. Kate Duncan wrote in 2001 that "It has been estimated that about 80 percent of the tsantsas in private and museum hands are fraudulent," including almost all that are female or which include an entire torso rather than just a head.

Of course the Melanesians were supposed to shrink heads also, which is another interesting connection between the Pacific islands and South America.

You can read about the process here or here.