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From Wikipedia:

The modern use of military exercises grew out of the military need to study warfare and to 'reenact' old battles for learning purposes. During the age of Kabinettskriege (Cabinet wars), Frederick the Great, King of Prussia from 1740 to 1786, "put together his armies as a well-oiled clockwork mechanism whose components were robot-like warriors. No individual initiative was allowed to Frederick's soldiers; their only role was to cooperate in the creation of walls of projectiles through synchronized firepower." 

This was in the pursuit of a more effective army, and such practices made it easier to look at war from a top-down perspective. Disciplined troops should respond predictably, allowing the study to be confined to maneuvers and command. 

German Army soldiers during exercise Joint Resolve 26 in Bosnia. The stunning Prussian victory over the Second French Empire in the Franco-Prussian War (1870--71) is sometimes partly credited to the training of Prussian officers with the game Kriegspiel, which was invented around 1811 and gained popularity with many officers in the Prussian army. These first war games were played with dice which represented "friction", or the intrusion of less than ideal circumstances during a real war (including morale, meteorology, the fog of war, etc.). 

21st-century militaries still use war games to simulate future wars and model their reaction. According to Manuel de Landa, after World War II the Command, Control and Communications (C3) was transferred from the military staff to the RAND Corporation, the first think tank. 

The achievements of RAND stem from its development of systems analysis. Important contributions are claimed in space systems and the United States' space program, in computing and in artificial intelligence. RAND researchers developed many of the principles that were used to build the Internet. RAND also contributed to the development and use of war gaming. 

Current areas of expertise include: child policy, civil and criminal justice, education, health, international policy, labor markets, national security, infrastructure, energy, environment, corporate governance, economic development, intelligence policy, long-range planning, crisis management and disaster preparation, population and regional studies, science and technology, social welfare, terrorism, arts policy, and transportation.

RAND designed and conducted one of the largest and most important studies of health insurance between 1974 and 1982. The RAND Health Insurance Experiment, funded by the then-U.S. Department of Health, Education and Welfare, established an insurance corporation to compare demand for health services with their cost to the patient. 

According to the 2005 annual report, "about one-half of RAND's research involves national security issues". Many of the events in which RAND plays a part are based on assumptions which are hard to verify because of the lack of detail on RAND's highly classified work for defense and intelligence agencies. The RAND Corporation posts all of its unclassified reports in full on its website.

As RAND's agenda evolved, systems analysis served as the methodological basis for social policy planning and analysis across such disparate areas as urban decay, poverty, health care, education, and the efficient operation of municipal services such as police protection and firefighting.

RAND Corporation