Can depression be faked, and for what reason would someone do this? Is there a more accurate way of diagnosing it to tell when someone is just putting it on?
Although depression comes in many forms and presents itself somewhat differently in different individuals, one of the key features of major depression, as opposed to merely feeling sad, is that it literally slows down the brain's processing and reaction speeds. A heavily depressed person is not only down, but sluggish; and this sluggishness cannot simply be removed using a joke or other short-term positive stimulation. On a related note, a normal person could without too much trouble learn how to act like he or she has schizophrenia, but a real schizophrenic (without medication) could not act like a normal person very effectively, regardless of how hard it were tried.
One of the problems with diagnosing based on reaction times and other measurable features is that these measurements differ quite a bit from individual to individual. You would need historic data from a particular person to use for comparison to present measurements. Some people, after all, were basically born depressed while others were basically born manic.
Personally, I absolutely agree that the industry (and society) could really benefit from having real testing methods involving objective measurements rather than subjective observations and hunches.
Edit: To answer your question more directly, yes a person could fake depression. However, the quality of this impersonation, if you will, would depend on the knowledge and experience of the performer; and the quality of recognising this faking would depend greatly on the observer. As for reasons for faking, there are many possibilities -- this all depends on the person's agenda.