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An old watch. Image copyright Tony Karp, found at http://www.techno-impressionist.com/catalogs/show2/tk200057.htm
The origin of the wrist watch is an interesting story. The wrist watch was invented in the late 1800s by Patek Phillipe, but wrist watches were only worn by women and seen as a women's fashion item. Wrist watches became popular for men thanks to famous Brazilian inventor and aviation pioneer Alberto Santos-Dumont. Santos-Dumont was famous for racing hot air balloons and experimenting with early aviation in Paris. In 1904, Santos-Dumont complained to his friend Louis Cartier about his difficulty checking his pocketwatch to track his performance while manning the controls of his hot air balloon at the same time. Cartier developed a wrist watch for him, which Santos-Dumont always used while flying. Santos-Dumont's use of the watch helped it gain acceptance among men, and the Cartier name is still well-known as a maker of luxury watches.
World War I also proved to be quite valuable to wrist watches. Wrist watches can be used more quickly than pocket watches, which must of course be pulled out of some pocket for each use. The armies started providing their soldiers with wrist watches, since officers and artillery people needed to precisely coordinate their attacks and range shots. When the war was over, men were allowed to keep their wrist watches, which was a major event for bringing the wrist watch to the middle class and popularizing the watch in Western culture.
The electronic wrist watch was introduced in 1959 by the Hamilton Watch Company, which also jointly developed the first digital watch in 1970. As quartz and liquid crystal technology developed, it became possible to build sophisticated watches which do not have moving parts. Many watches today can run for years on a single battery and might lose a second at most over ten years. Ditigal watches have added functionality in some models, such as stop-watch capability, calculators, or even the ability to interface with computers. Other watch developments include the use of kinetic energy from the wearer's arm to power the watch, and the introduction of watches which communicate with atomic clocks via radio and are accurate up to a nanosecond.
Sources:
Encarta: http://encarta.msn.com/encyclopedia_761577936_1/Clocks_and_Watches.html
Encyclopedia.com: http://www.encyclopedia.com/html/w/watch.asp
Wikipedia: http://en.wikipedia.org/wiki/Watch#Wrist_watch
For more on how watches work (Thanks to Wikipedia): http://www.fhs.ch/en/work.php
For more on watch history (through Encyclopedia.com)
C. Clutton and G. Daniels, Watches: A Complete History (3d ed. 1979)
J. Zagoory and H. Chan, A Time to Watch: The Wrist Watch as Art (1985)
E. Bruton, History of Clocks and Watches (1989).